Many executives are fond of promising to deliver growth, but far fewer realize those ambitions. This is because many fundamentally mismanage the growth gap, which is the difference between their growth goals and what their base businesses can deliver. Filling the gap requires either innovative new offerings or acquisitions. That’s where the trouble starts — it is easy to be fooled by rosy assumptions that, when analyzed in a disciplined way, turn out not to be practical.
Let’s take the example of one large company we worked with, which posited that it needed $250 million in new revenue from innovative new products in five years. Spreadsheets were developed, resources were marshaled, budgets were approved, and the work began. It was decided that, given the company’s size, project selection should filter out new product ideas unless, at maturity, they could be expected to generate $50 million in revenue. Over the stipulated five-year time horizon, this seemed reasonable.
We started mapping future projections to resource commitments with a framework called the Opportunity Portfolio, in which projects are evaluated with respect to their market and technical uncertainty, their resource intensity, and their upside potential.
We assigned projects to four categories of opportunity (plus another category for innovations that support the core business). Positioning options have high technical but low market uncertainty, in which the major challenge is solving a technical problem of some kind. Scouting options have low technical but high market uncertainty, in which the major task is finding product/market fit to extend the reach of an existing capability. Stepping-stone options have both high technical and high marketing uncertainty. Finally, platform launches represent a new business that is ready to be scaled up. These have relatively lower uncertainty than an option. They may be generating revenue but usually not yet a lot of bottom line. They show enough promise that they will become mainstay core products in the next 12 months or so.
Projecting new revenues to the four areas in the Opportunity Portfolio was an easy exercise. As the following table shows, it led to a comforting view of the future growth potential of the current portfolio. Each block in the table denotes new revenue that year from maturing portfolio investments, resulting in cumulative new revenue, which can be found at the bottom of each column. Note that the table implicitly projects limited investment and a slow start to the new growth initiatives, with no new revenues in 2017, modest new revenues in 2018, and significant new revenues really only beginning in 2020 and 2021.