Innovation or Efficiency

New digital technologies offer a plethora of opportunities for businesses to improve efficiency and increase profitability. The digital economy is transforming businesses all across the globe – be it retail, healthcare, hospitality and beyond. However, the rapid pace of technological advancement has put the businesses into the crossroads of the dual mandate. Companies are grappling to continue to execute efficiently while incorporating innovation through newer technologies. There is a need to constantly innovate to renew the core business, while maintaining the quality of products and services to the existing customers, and for the emerging markets.

There is a need to be efficient, and stay innovative or creative at the same time. To stay competitive and to maintain this delicate balance, the change inside the organisation must be faster than the change outside of it. If the process building for innovation takes too long, it can kill the spark, putting the company at the risk. However, if sufficient time is not given to brainstorm, research and share ideas as a team, the innovation will not happen.

Many companies have been struggling with the same dilemma for several years. There are opportunities to partner with their clients on new emerging technologies such as mobile, social, cloud and analytics. However, there is also a need to constantly renew their core business of application services, infrastructure management, systems integration and business process service. After a great deal of market analysis and research, the Three Horizons Model (3H) for portfolio management has been derived where a company is seen as a portfolio of businesses grouped together according to their growth characteristics.

Horizon 1 is the core business that provides the bulk of cash flows and revenue, and the focus is to defend and extend this core field. Emerging opportunities such as business process services, business consulting or infrastructure managements are promising businesses and fall in horizon 2. And finally, all the mobile, social, analytics and cloud offerings, new market segments, new geographies and new service delivery models are grouped in Horizon 3. This model demands a great deal of discipline and effort to make it work, however, once successfully implemented, it can yield great results for the company. To ensure the success, the company needs to grow all the three horizons concurrently, ensuring complete discipline about allocating resources across the horizons.

The process building for efficiency is quite different from that for innovation. To create a good balance, it is essential to build processes that make companies more effective and at the same time figure out a way to ensure that innovation is allowed into the mix. Clearly, every business needs both, a focus on innovation, and a focus on efficiency. Gore, 3M, P&G are good examples of companies that have managed to do both quite well simultaneously. Companies that can formulate a balanced strategy will thrive, and companies that focus entirely on efficiency or innovation can easily become one trick ponies.