An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The framework is based on the idea that many innovative projects can be brainstormed and fed through the wide mouth of the funnel.
To begin narrowing the funnel, the business must screen each idea in various ways and at various stages to determine whether it is worth pursuing.
At the end of the funnel, its narrowest point, the business is left with the opportunities it must prioritize moving forward.
These are opportunities that make the best use of resources, deliver on project objectives, and align with organizational goals.
Moving through the innovation funnel
Depending on methods, objectives, and project specifics, there are many ways a business can move through the innovation funnel.
Here is a very general look at some of the most important steps:
Opportunity assessment
To begin with, the business must examine customer and market data to determine whether there are opportunities for a new product or product line.
Insights-based ideation
During this step, the business works out whether an opportunity could be monetized.
Further research into the market and target audience should be performed with brainstorming, crowdsourcing, and focus groups used to generate product ideas.
Some organizations will also seek out existing research and access development grants.
Conceptualization
Here, the most viable areas are turned into prototypes ready for testing.
Several prototypes may be created for the same product for different features or iterations.
Evaluation and benchmarking
The prototype is then tested on the appropriate end-users, with further tweaks made based on their feedback.
Consolidation
At this point, the business must decide whether to continue investing resources into an idea or cut it loose.
Many organizations have difficulty with this step, either persisting with unviable ideas for too long or discarding potential winners.
Viability is determined by assessing manufacturing, marketing, distribution, and advertising costs, among other things.
Launch
At the launch step, the business has reached the narrowest point of the funnel.
The innovative idea becomes a reality once it has been released to the market.
Limitations of the innovation funnel
The innovation funnel does have a few limitations:
Risk-averseness
The innovation funnel is a risk-averse strategy that errs on the side of caution.
Opportunity Assessment: The e-commerce platform recognizes an opportunity to boost sales and user engagement by implementing an AI-driven recommendation system.
Insights-based Ideation: They analyze user purchase history and behavior to understand what products to recommend.
Conceptualization: AI specialists develop algorithms for personalized recommendations.
Evaluation and Benchmarking: They deploy the AI system on a small scale and track metrics like click-through rates and increased sales.
Consolidation: Seeing significant improvements in user engagement and sales, they decide to fully implement the recommendation system.
Launch: The AI-powered recommendation system is integrated into the platform, and users experience personalized product suggestions.
Telecommunications Company – 5G Network Expansion:
Opportunity Assessment: The telecom company identifies an opportunity to stay competitive by expanding its network to offer 5G services.
Insights-based Ideation: They study market demand for high-speed mobile internet and forecast future growth.
Conceptualization: Network engineers design the infrastructure required for 5G coverage.
Evaluation and Benchmarking: They conduct pilot tests in select cities to evaluate network performance and customer satisfaction.
Consolidation: Based on positive results and market demand, they commit to a full-scale 5G network rollout.
Launch: The company launches 5G services in multiple regions, attracting tech-savvy customers.
Tech Startup – IoT Device Development:
Opportunity Assessment: The startup identifies a gap in the market for a specific Internet of Things (IoT) device that can improve home automation.
Insights-based Ideation: They engage potential users through online forums and surveys to understand desired features.
Conceptualization: Engineers design the IoT device’s hardware and software components.
Evaluation and Benchmarking: A limited number of devices are produced and tested in real-world scenarios.
Consolidation: Positive user feedback and performance results lead to a decision to manufacture the IoT device at scale.
Launch: The startup releases the IoT device to the market with an online and retail presence.
Key takeaways
An innovation funnel provides a framework for the screening and testing of innovative ideas for viability. In theory, it ensures only the best ideas are executed.
An innovation funnel takes many forms depending on the end goal of the business. However, some of the key steps may include opportunity assessment, ideation, conceptualization, evaluation, consolidation, and product launch.
An innovation funnel does have some limitations. Primarily, the framework favors risk-averse ideas that are safe without being creative.
Innovation Funnel Highlights:
Definition: An innovation funnel is a metaphorical tool or process used to screen and prioritize innovative ideas, allowing only the most viable ones to progress through various stages and eventually be launched to the market.
Purpose: The innovation funnel aims to ensure that only the best ideas are executed, providing a framework for screening, testing, and prioritizing innovative concepts.
Innovation Paradigms: Different types of innovation include basic research, breakthrough innovation, sustaining innovation, and disruptive innovation. Business model innovation focuses on crafting compelling value propositions to create lasting competitive advantages.
Idea-Generation Pipeline: A key aspect of innovation loops is to establish an idea-generation pipeline, which feeds ideas into the innovation funnel.
Framework of the Innovation Funnel:
Wide Mouth: The funnel starts with brainstormed innovative projects.
Screening and Narrowing: Ideas go through screening and evaluation at various stages to determine their worth.
Prioritization: At the funnel’s narrowest point, viable opportunities aligned with organizational goals are prioritized.
Steps in the Innovation Funnel:
Opportunity Assessment: Analyzing customer and market data to identify opportunities.
Insights-based Ideation: Generating and monetizing ideas through research and brainstorming.
Conceptualization: Creating prototypes for testing and refining.
Evaluation and Benchmarking: Testing prototypes with end-users and making improvements.
Consolidation: Deciding to invest further resources or discard ideas based on viability.
Launch: Releasing the innovative idea to the market.
Limitations of the Innovation Funnel:
Risk-Averseness: The funnel may reject innovative but risky ideas, prioritizing safe options.
Short Evaluation Time: Quick evaluation may lead to discarding viable ideas prematurely.
Discourages Creativity: The focus on risk-averse ideas can discourage creativity in favor of safe choices.
Key Takeaway: An innovation funnel serves as a structured approach to vet and prioritize innovative ideas for execution. While it helps in selecting viable options, it may also limit creativity and overlook potentially valuable ideas due to its risk-averse nature and rapid evaluation process.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
A four-step innovation process is a simple tool that businesses can use to drive consistent innovation. The four-step innovation process was created by David Weiss and Claude Legrand as a means of encouraging sustainable innovation within an organization. The process helps businesses solve complex problems with creative ideas instead of relying on low-impact, quick-fix solutions.
Innovation in the modern sense is about coming up with solutions to defined or not defined problems that can create a new world. Breakthrough innovations might try to solve in a whole new way, well-defined problems. Business innovation might start by finding solutions to well-defined problems by continuously improving on them.
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. The transitional business model helps the company secure the needed capital while having a reality check. It helps shape the long-term vision and a scalable business model.
The minimum viable audience (MVA) represents the smallest possible audience that can sustain your business as you get it started from a microniche (the smallest subset of a market). The main aspect of the MVA is to zoom into existing markets to find those people which needs are unmet by existing players.
Business scaling is the process of transformation of a business as the product is validated by wider and wider market segments. Business scaling is about creating traction for a product that fits a small market segment. As the product is validated it becomes critical to build a viable business model. And as the product is offered at wider and wider market segments, it’s important to align product, business model, and organizational design, to enable wider and wider scale.
The market expansion consists in providing a product or service to a broader portion of an existing market or perhaps expanding that market. Or yet, market expansions can be about creating a whole new market. At each step, as a result, a company scales together with the market covered.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
In the FourWeekMBA Revenue Streams Matrix, revenue streams are classified according to the kind of interactions the business has with its key customers. The first dimension is the “Frequency” of interaction with the key customer. As the second dimension, there is the “Ownership” of the interaction with the key customer.
Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.
A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
