If you’ve been around the innovation world for a while you probably came across the 70-20-10 ‘golden rule’ for portfolio management. Specifically the rule suggests that 70% of a company’s resources need to go toward core-business innovation, 20% towards adjacent innovation and 10% towards disruptive or radical innovation.
Historically speaking, the concept was first introduced by Eric Schmidt, ex-Google CEO in the early 2000s. But it really took off in the mid 2010s with the book How Google Works by Eric Schmidt and Jonathan Rosenberg (2014). In this book, Schmidt and Rosenberg elaborate on how Google’s culture of innovation was fostered by allowing employees to dedicate time to core, adjacent, and transformative projects. They describe the model as key to Google’s balanced growth and success.
However, in practice, dogmatically pursuing the 70-20-10 has proven extremely challenging for the companies that tried it, and in some instances, even harmful for their financial performance, work environment and investor’s relationships. For the simple reason that it’s not the 2010s and most companies are not Google 🙂
So if 70-20-10 is not an ideal portfolio or investment mix, how should leaders go about determining the right one for their businesses?
Coming up with the right portfolio mix, leaders need to consider the following areas :
Corporate Context
A. The company strategy and strategic intent. The company’s strategy and strategic intent are critical factors in determining the right investment mix. If a company’s strategic focus is on optimizing its core business—whether in preparation for an upcoming IPO or to fulfill specific commitments to stakeholders—the investment mix will likely differ significantly from a 70-20-10 distribution. In such cases, the emphasis will be on enhancing core operations, with less focus on adjacent or transformational innovation. The investment strategy will align closely with the company’s immediate priorities, shaping a more conservative approach that prioritizes stability and performance over diversification or risk-taking. Conversely companies that find themselves under threat of disruption might pursue an investment mix skewed toward a pursuit of transformational innovation.
Take for example Facebook back in the early 2010s before its IPO. The company’s strategic intent was the IPO, hence in the years leading to the 2012 IPO Facebook concentrated its resources on refining its core social networking platform, enhancing user experience, and growing its user base. Key innovations were aimed at: expanding and engaging its core user base (Facebook invested heavily in improving its platform’s functionality, including the News Feed, which became a defining feature, and optimizing the mobile experience to drive user engagement) and monetization of its core product (Facebook developed its advertising model, focusing on targeted ads within the core platform, which drove most of its revenue. The company experimented with social ads and sponsored stories but kept these innovations tightly linked to its main social media business).
Only after the IPO did the company begin to invest in more transformative innovations, such as virtual reality (with the Oculus acquisition) and the development of additional platforms like WhatsApp and Instagram.
B. The health of a company’s balance sheet. The health of a company’s balance sheet plays a crucial role in shaping its investment strategy. If a company is cash-strapped or struggling with narrow margins, it simply cannot afford to take on high-risk ventures. In such cases, the investment mix will primarily focus on core innovation, with some potential allocation toward adjacent opportunities. However, transformational innovations will likely be too risky and expensive for a financially constrained company, as they may jeopardize the stability of the balance sheet. The focus will be on strengthening existing operations and maintaining financial security, rather than venturing into costly, uncertain innovations.
Once a leader in the smartphone industry, BlackBerry found itself struggling to compete with Apple and Android as the market evolved. As its revenues declined and profit margins shrank, BlackBerry’s weakened financial position forced it to focus on its core smartphone offerings rather than pursuing costly, high-risk innovations. The company concentrated on incremental improvements to its physical keyboards and security features to retain its loyal business customers.
Lacking the cash to invest in transformational projects, BlackBerry avoided big leaps, such as developing a new operating system or exploring innovative device formats. It made modest attempts to diversify into adjacent areas, like enterprise software and security solutions, which were safer bets and aligned with its existing reputation. Eventually, as financial pressures grew, BlackBerry exited the smartphone market entirely, pivoting to focus on lower-risk enterprise software.
C. The company’s risk appetite and culture. A company’s risk appetite, closely tied to its strategic intent, however it also often reflects its culture. In organizations with a strong risk-averse culture, investing beyond the core business becomes a challenge. If the market does not demand risky investments, such companies will typically avoid exploring adjacent or transformational innovations, focusing instead on maintaining stability within their established operations.
In the early 2000s, IBM adopted a highly risk-averse culture, focusing primarily on incremental improvements within its core business areas, such as servers, mainframes, and enterprise IT services. As the tech industry evolved, IBM concentrated on optimizing these core offerings to maintain its traditional customer base rather than exploring high-risk, transformative technologies. This cautious approach limited its investment in emerging areas like cloud computing, a sector where companies like Amazon and Google were making bold strides.
IBM’s reluctance to invest in adjacent and transformational innovations ultimately put it at a competitive disadvantage as the tech landscape shifted. By the time it recognized the importance of cloud technology, competitors had already established significant leads. IBM’s initial focus on core innovation within a risk-averse culture slowed its ability to adapt, and despite later attempts to catch up, the company struggled to regain its position in the rapidly changing industry.
Market & Competitive Landscape Context
A. Competitive landscape and market dynamics. Market dynamics play a key role in shaping a company’s investment mix. In markets where the risk of disruption is high and barriers to entry are low, companies must prioritize investments in beyond-the-core innovation, such as adjacent and transformational initiatives, to stay competitive. On the other hand, in markets where disruption is less likely and access is more challenging, companies can afford to adopt a more conservative approach, focusing primarily on core innovation to maintain stability and growth.
The aircraft seating industry exemplifies how market dynamics shape a company’s portfolio approach. Because aircraft seats are subject to strict safety regulations, require extensive certification, and involve complex relationships with airlines, only a few companies—such as Safran Seats, Recaro Aircraft Seating, and Collins Aerospace—are capable of competing effectively. These dynamics mean that the risk of new entrants or disruptive innovations reshaping the market is extremely low. Consequently, established players can adopt a conservative investment approach, focusing on incremental improvements within their core business rather than investing heavily in transformative innovations. This approach allows them to strengthen their existing product lines without the pressure to pursue high-risk, beyond-the-core ventures. With stable demand and secure market positions, companies in the aircraft seating industry can channel investments into optimizing materials, weight reduction, and ergonomic design to better meet customer needs without the distraction of exploring radically new technologies. The market dynamics of high entry barriers, regulatory constraints, and low risk of disruption allow these companies to thrive with a conservative, core-focused investment strategy, reinforcing their dominance in a relatively stable and specialized segment of the aircraft interiors market.
B. The type of market the company is in. The type of market a company operates in significantly influences its approach to managing its innovation portfolio. In expanding markets, companies are less motivated to invest in adjacent or transformational innovation because improvements in their core business can drive disproportionate growth and performance. However, in markets where horizontal expansion opportunities are limited, companies must turn to adjacent and transformational innovation to generate new revenue streams and drive growth.
For instance, a solar energy provider or a battery manufacturer in the green energy sector may see rapid growth by investing in technologies that boost efficiency or lower production costs. Because expanding markets offer ample growth opportunities through core innovation alone, companies in these sectors generally have less motivation to allocate resources to adjacent or transformational projects. Instead, any gains in core performance can disproportionately benefit their competitive position and profitability.
In contrast, companies in mature and consolidated markets, such as telecommunications, face a different set of challenges. With market saturation and limited opportunities for horizontal expansion, telco companies often need to pursue new avenues for growth beyond their core operations. For example, telcos might explore adjacent markets such as 5G-enabled smart cities or digital health services, where they can leverage existing capabilities but cater to new applications and customer segments. Additionally, transformational innovation—like investments in AI-driven networks or virtual reality platforms—can open paths to entirely new revenue streams. For companies in these mature markets, investing in core improvements may yield diminishing returns, pushing them to diversify and expand into adjacent and transformational areas to remain competitive and unlock new growth trajectories.
Conclusions
For companies pursuing innovation-led growth, there is no one-size-fits-all approach or golden ratio when it comes to resource allocation or a standard portfolio map. Each company must tailor its approach to its unique circumstances, market dynamics, and growth objectives. What works for Google or even your direct competitors, may not be right for another. An arbitrary 70-20-10 distribution, for example, suits certain businesses but isn’t universally applicable.
While the 70-20-10 model is helpful as a guideline it should be taken as a goal to pursue but a gentle reminder to make sure you are investing in all parts of the innovation spectrum. Even if the balance shifts based on market demands or internal capabilities, companies should always allocate some resources across core, adjacent, and transformational innovation. A well-rounded investment approach, sensitive to the context of the company ensures resilience, flexibility, and readiness to adapt to future opportunities and challenges.
This article was originally posted on OUTCOME blog.
