Complete Article: HBS Working Knowledge

You have three potential innovations, but resources to develop just one. Here are diagnostics to help you make the best decision. From Strategy & Innovation newsletter. A brief follows:

Customer diagnostic
This diagnostic assesses customers in order to identify “disruptable” market segments. Conducting this diagnostic involves looking for signs that specific customer groups either are overserved or are unsatisfied nonconsumers.

Portfolio diagnostic
The portfolio diagnostic assesses whether any current or potential innovations, such as new ideas or acquisition targets that produce appealing innovations, can be deployed in a way that successfully meets the needs of a disruptable customer group. This diagnostic involves looking at the technological characteristics of the innovation and at the potential business model by which the innovation might be brought to market.

Competitor diagnostic
The third diagnostic assesses competitors to ensure that the selected opportunity takes unique advantage of their weaknesses and blind spots. First, it helps to evaluate whether a competitor will be motivated to respond. Second, it identifies whether that competitor has the ability to do so effectively.

Putting it all together
By systematically conducting these diagnostics, any individual or team can quickly identify which opportunities within its purview are the most promising and therefore merit disproportionate attention. Sometimes, the one or two opportunities worth tackling are exceedingly clear. But other times, a number of seemingly equally promising ideas emerge. In these situations, create a weighting system where each opportunity can be rated against the factors discussed in this article.

When the highest-potential opportunity has been identified, build a preliminary business case for it. It should include a target customer, the characteristics of the selected innovation, the proposed business model to commercialize the innovation, and the predicted competitor response. In addition, the business case should highlight the key unknowns that need to be addressed while the selected opportunity is honed.

These diagnostics can also aid companies that are frustrated by their track record in making acquisitions. Many companies find that large acquisitions provide stable but lackluster returns, whereas small acquisitions typically have highly variable outcomes, occasionally producing blockbuster returns. Screening for small targets that match identified disruptive opportunities can, in essence, cut the tail off the returns distribution curve, allowing companies to capture disruptive growth before it becomes fully understood by the marketplace.

As an added bonus, this analysis will also highlight opportunities for sustaining innovations, the lifeblood of most companies as they allow existing companies to grow within markets where they have already gained a foothold. What kills companies is trying to introduce sustaining innovations into disruptive markets and vice versa.
Rigorously using these three diagnostics can help avoid this pitfall, allowing companies to systematically identify high-potential opportunities, address gaps between the planned deployment of the innovation and the factors that will determine its success, and begin to create new-growth businesses.