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

Rita McGrath
6 min readApr 24

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 things one is doing to keep today’s business humming along. These are critically important, of course — get those wrong and you won’t have the resources to do much else.

Next are investments in what they call adjacencies. At Valize, we call those new platforms. We both agree that, as they say, “an adjacent innovation involves leveraging something the company does well into a new space. Procter & Gamble’s Swiffer is a case in point…it used a novel technology to take the solution to a new customer set and generate new revenue streams.” We would use examples like Adobe’s amazing transition to cloud-based services and Amazon’s highly successful venture into enterprise software as well.

Finally, we have what they call potentially transformational initiatives (we call these options for the future). As they say, “these are designed to create new offers — if not whole new businesses — to serve new markets and customer needs. These are the…

Rita McGrath

Columbia Business School Professor. Thinkers50 top 10 & #1 in strategy. Bestselling author of The End of Competitive Advantage & Seeing Around Corners.