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Innovation is no longer a luxury—it’s survival. Organizations that fail to innovate, stagnate. It’s that simple. The challenge isn’t just coming up with ideas but knowing which ones to pursue and how to allocate resources effectively. That’s where the Innovation-Ambition Matrix steps in.
This framework helps leaders balance incremental improvements, market expansion, and transformative breakthroughs, ensuring Innovation efforts align with Strategy. Developed by Bansi Nagji and Geoff Tuff in their 2012 Harvard Business Review article “Managing Your Innovation Portfolio,” the matrix organizes Innovation initiatives into three categories: Core, Adjacent, and Transformational. Each plays a distinct role in sustaining growth, mitigating risk, and driving long-term impact.
Executives can’t afford to rely on gut instinct alone. A structured approach like the Innovation-Ambition Matrix offers a clear way to diversify Innovation investments, ensuring stability while pursuing high-reward opportunities.
At its core, the Innovation-Ambition Matrix is built on two fundamental strategic questions:
- “Where to Play?”—Should Innovation efforts focus on current markets, adjacent spaces, or entirely new frontiers?
- “How to Win?”—Should the organization refine existing products, develop incremental improvements, or introduce groundbreaking solutions?
These questions map onto two dimensions of the Innovation-Ambition Matrix:
- Market Focus—Does the Innovation serve existing customers, expand into new segments, or create a whole new market?
- Product/Asset Development—Does the Innovation refine current offerings, introduce small but meaningful upgrades, or develop entirely new Business Models?
The answers to these questions place Innovation initiatives into one of 3 categories:
- Core Innovations
- Adjacent Innovations
- Transformational Innovations
Striking the right balance is the art of portfolio management. Over-indexing on Core can lead to stagnation. Betting too heavily on Transformational risks long periods with no ROI. Adjacent Innovation often provides the bridge, delivering moderate growth with manageable risk.
Let’s dive deeper into the first 2 Innovation categories, for now.
Core Innovation
Core Innovations are the steady workhorses of an organization’s Innovation portfolio. They involve incremental improvements that enhance existing offerings, ensuring ongoing relevance in the marketplace.
Core Innovation is often seen as low-risk and high-reward because it builds on established success. Organizations already have the customer base, infrastructure, and supply chain to support these improvements. Core Innovation sustains but rarely disrupts.
Think about Apple’s annual iPhone releases. Year after year, the company refines camera quality, battery life, and processing power. Customers stay engaged, sales remain strong, and the brand maintains dominance—all without fundamentally changing the product.
Adjacent Innovation
Adjacent Innovation expands an organization’s reach by repurposing existing expertise for new markets or complementary products. This Strategy carries moderate risk—it’s unfamiliar territory, but not entirely uncharted. Adjacent Innovation allows organizations to diversify revenue streams without completely reinventing themselves. It’s a calculated bet, offering moderate returns with moderate risk. The challenge is knowing where to expand.
Case Study
Microsoft’s transition from a traditional software licensing model to a cloud-based ecosystem exemplifies a well-balanced Innovation portfolio.
- Core Innovation—Incremental improvements to Microsoft Office, Windows, and enterprise software kept the company relevant and profitable.
- Adjacent Innovation—Expanding into cloud computing with Azure leveraged existing enterprise relationships, providing a foothold in a growing market.
- Transformational Innovation—Developing AI-driven business solutions, integrating machine learning into core products, and creating an ecosystem around cloud services positioned Microsoft as a market leader in enterprise technology.
Microsoft’s ability to balance short-term stability with long-term Transformation demonstrates the power of the Innovation-Ambition Matrix in action.
FAQs
How should organizations allocate resources across Core, Adjacent, and Transformational Innovation?
A typical benchmark suggests allocating 70% to Core, 20% to Adjacent, and 10% to Transformational initiatives. However, the right mix depends on industry dynamics, market maturity, and risk tolerance.
What is the biggest mistake companies make with the Innovation-Ambition Matrix?
Over-focusing on Core Innovation while neglecting Transformational opportunities. Organizations that only chase incremental improvements risk being blindsided by disruptive competitors.
Is Transformational Innovation worth the risk?
Yes, but it requires patience and investment. Transformational Innovations take longer to develop and commercialize, but they create new markets and long-term growth. The key is balancing short-term wins with long-term bets.
Can a single Innovation project fit into multiple categories?
Absolutely. Some Innovations begin as Adjacent and evolve into Transformational over time. Amazon Web Services started as an Adjacent expansion of Amazon’s internal infrastructure before becoming a market-defining Transformational Innovation.
How can leadership foster a culture that supports all three types of Innovation?
Encourage experimentation, allocate dedicated resources for high-risk initiatives, and create cross-functional teams that explore opportunities beyond the core business. Innovation requires intentional investment—not just lip service.
Final Thoughts
The Innovation-Ambition Matrix is not just a framework—it’s a discipline. Organizations that apply it effectively don’t just chase the next big thing–they build a resilient Innovation engine that delivers consistent growth.
The real challenge isn’t deciding whether to innovate. It’s figuring out where to focus. Leaders who get this right create organizations that thrive in the face of disruption rather than becoming victims of it.
Interested in learning more about the categories of Innovation in detail? You can download an editable PowerPoint presentation on Innovation-Ambition Matrix here on the Flevy documents marketplace.
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To be competitive and sustain growth, we need to constantly develop new products, services, processes, technologies, and business models. In other words, we need to constantly innovate.
Ironically, the more we grow, the harder it becomes to innovate. Large organizations tend to be far better executors than they are innovators. To effectively manage the Innovation process, we need to master both the art and science of Innovation. Only then can we leverage Innovation as a Competitive Advantage, instead of viewing Innovation as a potential disruptive threat.
Learn about our Innovation Management Best Practice Frameworks here.
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