Dual innovation: Finding The Balance Between Exploitation and Exploration

Almost all companies now use innovation centres — incubators, accelerators, digital labs and other exploratory hubs — to find the “Next Big Thing.”

They do this concurrently with incremental innovation, which leads to product renovations and portfolio extensions.

The numbers are loud and clear: Separating these different types of innovations (known as “ambidexterity”) is necessary but not sufficient to generate business impact. In conversation with Paul Hobcraft, Frank Mattes explains how to increase the chances of success and best capture value generated by investments that explore new ground.

For impact, manage three Playing Fields

Large companies need to generate predictable growth through innovation. But they’re also under pressure from shareholders to come up with the “Next Big Thing.”

In practice this means working in “exploitative innovation mode” (squeezing out incremental improvements in a predictable way) parallel to “explorative innovation mode” (searching for the “Next Big Thing”).

Frank’s work with leading global companies led him to discover the necessity of a middle ground between exploitative and explorative innovation. It involves adapting the core business to new realities, while scaling validated concepts from explorative innovation to generate business impact.

The three Playing Fields defined

Companies that can simultaneously manage the three Playing Fields are able to successfully increase their business impact from innovation.

Each Playing field has its own operating model:

Playing Field 1: Short-term, predictable, incremental innovation
Playing Field 2 (the middle ground): Scaling up validated concepts from Playing Field 3 and extending core businesses to adjacencies
Playing Field 3: Long-term, explorative innovation (agile, iterative, design thinking / lean start-up-driven)

Transform the core

Over time, the core business must adapt to new realities, or fall by the wayside. Adaptation involves scaling up innovation ideas from the “explore” side so they can be digested by the core “exploit” business and turned into new revenue and growth.

Frank cites FinTech as an example. Financial services companies are adopting digital technologies to optimize their current offering. That same new tech, whether it’s robo-advisors or Blockchain, will inevitably transform the core business.

Build the bridge through Dual Innovation

Creating a harmonious and effective connection between Playing Fields 1 and 3 is challenging but essential to the success of an innovation strategy. Dual Innovation involves shaping the connection between these two different beasts while keeping them aligned with each other.

“Modern innovation is Dual Innovation.”