Use the 70-20-10 rule to innovate

Everything is disrupted. Today, dozens of industries are in the midst of disruption. Uncertainty is ubiquitous. Electric vehicles are turning the car industry upside down. Solar parks are rapidly replacing coal-fired power stations. Healthcare is transitioning to telecare. And the list goes on.

Disruption occurs when new solutions reinvent old business models. It’s easy to become enamored with disruptive innovation. Tesla, Coinbase, Shopify and a host of other companies are stealing the innovation heads. Many entrepreneurs and business innovators want to create the next big thing just like these icons. It is logical.

In the early days of Netflix, I met one of their executives at their headquarters in Silicon Valley. I asked him how Netflix approached innovation. He responded with a puzzled look on his face, saying, “Netflix is innovation.”

The Netflix executive saw the entire company as the very definition of disruptive innovation. And it was. It rocked Blockbuster and other video rental stores. Over time, however, Netflix has adopted various types of innovation to strengthen and expand its business model. It has been constantly updating its recommendation algorithms to make the user experience better and better. It started producing its own branded content. Netflix was indeed a disruptive innovation, but once established, the company used other forms of innovation to differentiate and grow.

Just over a decade ago, Google introduced a concept called the 70-20-10 rule. The company used the rule to help its employees understand how it allocated resources and projects. Since then, it has become a concept used in many industries to ensure a well-rounded focus on the different types of innovation that are important for both today’s competition and the creation of tomorrow’s solutions.

The 70-20-10 rule divides innovation into three types. A healthy approach to innovation focuses on all three:

• Core innovation: small changes in existing products, services and processes
• Adjacent innovation: new markets, product categories or other significant improvements to the core activities
• Disruptive innovation: game-changers that disrupt industries or create entirely new market spaces

The 70-20-10 rule says that 70% of people’s time and organizational resources should be devoted to activities related to advancing core activities on a small scale through continuous improvement. 20% should be focused on adjacent areas that significantly advance core activities through increased investment. 10% should be allocated to exploring disruptive opportunities in the sky.

I’ve worked with many companies trying to copy the 70-20-10 rule. Many struggle because the 70-20-10 assignments just don’t fit their business. Not everyone can or wants to work like Google. My advice is to apply the rule, but adjust the percentages as needed.

Some companies just aren’t disruptors. Their explicit strategy is to be a “fast follower.” While they may monitor the external environment to make sure they aren’t caught off guard, they don’t want to spend a lot of time or effort on the R&D needed to create a disruptive innovation from scratch. So they adjust the rule to suit their business, so it’s like 80-18-2. They still embrace the three types of innovation, but in their own way that works for them.