Why uncertainty is your friend if you’re looking for big returns

It’s tempting to invest in areas that promise certain returns for a given investment. Unfortunately, by the time an opportunity has become so well understood that anyone could pursue it, it is well on the way to commoditization. To find big payoffs, you must be willing to explore high uncertainty bets.

“The viability of a company depends on its ability to innovate.”

You might well have heard it from me, but this quote is actually from Bansi Nagii and Geoff Tuff (then partners at the Monitor Group) authors of a great 2012 Harvard Business Review article “Managing Your Innovation Portfolio.” In that article, they tell the same stories I tell, of companies dimly recognizing that just adding a twist here or a tweak there to their line of offerings is eventually going to lead them to a dull, less-and-less profitable slide into decline and irrelevance.

Let’s understand why that is.

Just as we do at Valize, they recommend looking at investments in new capabilities across a spectrum of uncertainty (we do the analysis using software). They call this the “innovation ambition matrix.”

Closest to the day-to-day business are investments in what they call the “core.” As you might expect, these are mostly…