Magic square of innovation

Marcus Ting-A-Kee has a post on his blog with a great magic square diagram describing a perspective on innovation. This framework provides us with an easy way to assess the potential impact of an innovation. We will…

• show how to use the square
• look at some example innovations
• and use the square to prioritize requirements

The square is Marcus’ creation, and his post includes additional content – he’s given me permission to show it here. Thanks, Marcus

Potential impact

We can use this diagram to plot innovations and get a feel for how much potential impact they could have.

Points further to the right (having greater strategic scope) have more potential for revenue, by introducing new sources of top-line growth (new sales in new markets) for the company that is innovating.

Points higher up (improving organizational capabilities) have more potential for profit, by increasing top-line growth (new sales in existing markets) or by decreasing costs (gaining operational efficiencies or reducing material costs) .

Some examples in each quadrant:

Improve core business

• Firefox added tabs to browsing.
• Adobe made pdf documents interactive (you can fill in the forms directly within some pdf files).

Exploit strategic advantage

• Microsoft leveraged its operating system platform to sell MS Office to corporate clients (where the real money is).
• Google monetized search with advertising (instead of becoming a portal like Yahoo and MSN).

Develop new capabilities

• ICQ realized that instant messages could be sent over the web. [We are excluding talk/ytalk/wall, which only supported geeks. People can use ICQ]
• Paypal made it possible to pay an individual with a credit card.
• Dell optimized on process efficiency to allow them to dominate the PC industry

Create revolutionary change

• P2P file sharing utilizing file “fingerprints” and small portions of files (we think Napster was first, but can’t find a trusted answer).
• eBay enabled millions of people to bid and auction online in a trusted environment.
• Salesforce.com is making the ASP/SAS model viable for enterprise software.

Using this approach for determining the high-value requirements

We’ve talked about using ROI to prioritize requirements – we’re probably starting to sound like a broken record about it. Innovation isn’t assured to be valuable. Differentiated innovation is what we must strive for. Once we have our list of differentiated innovations, we can map them onto this grid to get a gut-check about how valuable they might be. We can also use this grid to sanity check projections based upon these requirements.

One way to do this is to write down all of the requirements that represent differentiated innovation on individual post it notes. Draw this magic square on your whiteboard. Put the post-its where they belong in the square. The further up and right the post-it note is, the earlier the release in which it should be scheduled.