If you have read anything about innovation portfolio allocation, you have encountered the 70-20-10 rule. 70% of resources to core innovation, 20% to adjacent, 10% to transformational. It comes from Bansi Nagji and Geoff Tuff’s 2012 Harvard Business Review article, and it is one of the most cited frameworks in innovation portfolio management.
It is also one of the most misapplied.
Over 25 years of working with industrial companies on their innovation strategy, and 100+ sessions facilitating portfolio decisions, I have seen the 70-20-10 rule do more harm than good when teams treat it as a prescription instead of a starting point. A chemical company facing platform disruption needs a fundamentally different allocation than a packaging machinery manufacturer with a stable customer base. A B2B industrial company where a single explore bet costs €2.000.000 needs different math than a SaaS company running €20.000 experiments.
The right innovation portfolio allocation depends on your specific situation. Here is how to find it.
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What the 70-20-10 rule actually says (and what it does not)
Nagji and Tuff analyzed innovation portfolios across industries and found that companies who actively managed the balance between core, adjacent, and transformational innovation outperformed those who let allocation drift. The average allocation among top performers was roughly 70-20-10.
Two things to note here. First, 70-20-10 is an average. It was never meant to be a universal target. The original article explicitly states that the right ratio varies by industry. Most people skip that part.
Second, the research measured resource allocation, not just budget. Time, talent, and management attention matter as much as money. A company that allocates 10% of budget to transformational but assigns its weakest team to those projects has not actually allocated 10%.
The framework also introduced the innovation ambition matrix, mapping initiatives across two dimensions: how new the offering is and how new the market is. Core innovation improves existing products for existing customers. Adjacent expands into related products or markets. Transformational creates entirely new offerings for entirely new segments.
This is useful as a diagnostic tool. It becomes dangerous when leadership teams adopt 70-20-10 as a target without asking: is this the right ratio for us?
Why industry dynamics change the math
I work primarily with manufacturing and industrial companies. The innovation portfolio allocation that works for a consumer tech company is often wrong for an industrial B2B company, for three reasons.
Development cycles are longer. A software company can test a new business model in weeks. A chemical company developing a new material might need 18 months before the first customer can even evaluate it. Longer cycles mean your explore investments need more patience and more funding per project.
Capital intensity is higher. In manufacturing, a minimum viable experiment might require pilot production equipment, regulatory testing, and specialized materials. I have worked with companies where a single explore project cost €1.500.000 before producing meaningful customer evidence. Compare that to a digital company where you can test a new value proposition with a landing page and €5.000 in ad spend.
Switching costs protect you, until they do not. Industrial companies often have deep customer relationships and high switching costs. This creates a false sense of security. Leadership looks at customer retention rates and concludes they do not need to invest heavily in explore. Then a competitor introduces a service model or a platform play that redefines the category, and those switching costs drop to zero overnight.
These factors do not invalidate the 70-20-10 framework. They change what the right numbers should be.
Four factors that determine your right allocation
Instead of adopting a generic ratio, I walk leadership teams through four factors. Each one shifts the allocation in a specific direction.
1. Disruption pressure
How fast is your industry changing, and who is driving the change?
If your core business model is stable, customers are satisfied, and no competitor or adjacent player is fundamentally changing how value gets delivered, a heavier allocation to core (75-80%) can be rational. You are optimizing a machine that works.
If you see signals of disruption, whether from new entrants, technology shifts, regulatory changes, or customers moving to new purchasing models, you need more in adjacent and transformational. I have worked with companies that needed 60-25-15 or even 50-30-20 to match the urgency of their competitive situation.
The trap: most companies underestimate disruption speed. By the time it feels urgent, you are already three to five years behind. A packaging company I worked with was still debating their explore allocation when a competitor launched a circular packaging platform that signed their three largest customers. Three years of “we should explore this” turned into a crisis.
2. Capital intensity per experiment
This is the factor most frameworks ignore, and it is the one that matters most for industrial companies.
In a low capital intensity environment, you can run 20 experiments for €200.000. Spread the transformational budget thin, let a hundred flowers bloom, kill fast. This is the Silicon Valley playbook.
In a high capital intensity environment, that same €200.000 might fund one experiment, and not even a complete one. Running 20 experiments would require €4.000.000 to €10.000.000. Which means you cannot afford the spray-and-pray approach. Every explore bet needs to be more carefully selected, more rigorously designed, and funded enough to produce real evidence.
| Capital intensity | Experiment cost | Strategy |
|---|---|---|
| Low (digital, services) | €5.000 to €50.000 | Many parallel experiments, kill fast |
| Medium (light manufacturing) | €50.000 to €500.000 | Selective experiments, staged funding |
| High (heavy industry, chemicals) | €500.000 to €5.000.000 | Few, well-designed experiments with clear decision gates |
For high capital intensity companies, the percentage allocated to explore might be similar to low capital intensity companies, but the absolute number of projects will be smaller. That is fine. What matters is that each project gets enough funding to produce real evidence, not that you have a long list of underfunded experiments.
3. Competitive position
Your position in the market should directly influence allocation.
Market leaders with strong positions can afford to invest more in adjacent and transformational because the core business generates the cash flow to fund exploration. This is exactly when you should explore: when you can afford to. Not when you are forced to.
Companies in weaker competitive positions face a harder choice. They need to protect the core to survive, but they also need to find new sources of growth. I typically see these companies allocate 70-75% to core out of necessity, with 15-20% to adjacent and 5-10% to transformational. The key is making those smaller explore bets count by focusing on areas where your existing capabilities give you an unfair advantage. A Business Model Canvas analysis of your current model often reveals assets and capabilities that could be deployed in new ways.
4. Regulatory and technology environment
Some industries face regulatory changes that make current business models obsolete. Automotive with emissions. Energy with decarbonization. Chemicals with REACH and sustainability requirements. If regulation is forcing a transition, your allocation needs to reflect that reality, even if your current business is still profitable.
Similarly, if a foundational technology shift is underway in your industry (electrification, digitalization, bio-based materials), you need enough in adjacent and transformational to build capability before the shift is complete. Companies that wait until the new technology is proven end up buying capability at premium prices instead of building it at development cost.
How to determine your company’s allocation in practice
Here is the process I use with leadership teams. It takes about two sessions, typically in a workshop setting.
Session 1: Map the current state.
Start by making the current allocation visible. Most leadership teams have never seen their innovation portfolio mapped explicitly across core, adjacent, and transformational. When I put the numbers on the table, the reaction is almost always the same: “I did not realize it was that skewed.”
Gather every active project that sits under innovation, R&D, or new business development. Classify each one: is it improving an existing product for an existing customer (core)? Expanding into a related market or capability (adjacent)? Creating something fundamentally new (transformational)?
Then calculate the allocation: what percentage of budget, headcount, and management attention goes to each category?
Most industrial companies I work with discover that 85-95% of resources go to core. The “innovation portfolio” is an optimization portfolio. This is the same pattern I describe in innovation portfolio mistakes: claiming innovation matters while funding says otherwise.
Session 2: Set the target allocation.
Walk through the four factors above. Score each one as a team: how much disruption pressure do you face (low, medium, high)? What is your capital intensity per experiment? Where is your competitive position? What regulatory or technology shifts are coming?
Then use this scoring to adjust from a 70-20-10 baseline:
| Factor | If high | Allocation shift |
|---|---|---|
| Disruption pressure | Active disruption visible | Shift 10-20% from core to adjacent/transformational |
| Capital intensity | €500K+ per experiment | Fewer projects, higher funding per project |
| Competitive position | Market leader with cash flow | Increase explore allocation while you can afford it |
| Regulatory/technology shift | Mandatory transition underway | 15-25% to transformational, non-negotiable |
The output is not a perfect number. It is a deliberate strategic choice, documented and agreed upon by the leadership team. That matters more than precision. A team that consciously decides on 65-20-15 and governs it will outperform a team that drifts into 90-7-3 without realizing it.
What happens when you follow 70-20-10 blindly
I have seen two failure modes.
Failure mode 1: Under-investing in explore when disruption demands more. A company adopts 70-20-10, allocates 10% to transformational, and feels good about it. But their industry is being disrupted by platform models, and 10% is nowhere near enough to build the capability they need. The 70-20-10 rule gave them permission to feel they were “doing innovation” when the situation demanded 50-30-20 or even more aggressive reallocation. The rule became a ceiling instead of a floor.
Failure mode 2: Spreading explore budget too thin. A company allocates 10% to transformational but then divides it across eight projects. Each project gets €150.000 per year. In manufacturing, that is not enough for any of them to produce meaningful evidence. After 18 months, none of the eight projects have results, leadership concludes that “transformational innovation does not work for us,” and the entire explore budget gets redirected to core. The problem was not the ambition. It was the allocation math: too many projects, not enough per project.
Both failure modes share a root cause: treating 70-20-10 as a formula instead of a framework that needs to be adapted.
How to present allocation recommendations to a board
Most boards have never discussed innovation portfolio allocation explicitly. They approve an R&D budget and assume management is allocating it well. Bringing allocation to the board level requires framing it as a strategic risk conversation, not a budget request.
Here is the approach I recommend:
Show the current state first. Present the actual allocation: what percentage goes to core, adjacent, and transformational. Most board members will be surprised at how skewed it is. Numbers make it real. “We spend 92% on core” hits differently than “we need more innovation budget.”
Frame explore as risk management. Do not ask the board to fund innovation because it is exciting. Ask them to consider the risk of not exploring. What happens in three to five years if a competitor launches a platform model, if a regulatory shift makes current products obsolete, if a technology breakthrough changes cost structures? Under-investing in explore is a strategic risk, not a missed opportunity.
Present scenarios, not a single recommendation. Show three allocation scenarios with different risk profiles. Conservative (80-15-5), balanced (70-20-10), and strategic (60-25-15). For each, explain what it funds, how many explore projects it supports, and what the expected evidence horizon is. Let the board choose the risk profile.
Include governance alongside allocation. Boards rightly worry about explore money being wasted. Present the allocation together with the governance mechanisms that protect it: kill criteria before projects start, evidence-based reviews, staged funding tied to validated learning. A testing discipline that produces real evidence gives boards confidence that explore money is being spent rigorously, not thrown at ideas and hoped for the best.
The practical tools for explore projects: How to fill in a Business Model Canvas for designing the business model, How to fill in a Value Proposition Canvas for sharpening customer fit, and How to test business assumptions for turning assumptions into evidence.
For the complete governance framework including review cadence and decision criteria, see innovation portfolio governance.
Allocation is a governance problem, not a math problem
The right allocation for your company is not hiding in a formula. It is a strategic decision that depends on your specific competitive situation, your industry dynamics, and your willingness to protect explore from the constant pull of exploit.
I have worked with companies where 80-15-5 was the right allocation, and others where 50-30-20 was barely aggressive enough. The number itself matters less than three things: that the leadership team chose it deliberately based on strategic factors, that it is protected by governance that prevents quarterly pressure from overriding it, and that it gets reviewed at least annually as market conditions change.
The 70-20-10 rule gave innovation portfolio management a common language. That was valuable. But using it as a prescription instead of a starting point is one of the most common innovation portfolio mistakes I see. Your industry, your capital intensity, your competitive position, and your regulatory environment should determine your allocation. Not an average from a study that explicitly said “your mileage will vary.”
Start with the four factors. Map your current allocation. Have the honest conversation about what should change. And then protect that allocation with governance that makes it stick.
If your company has not assessed its readiness for this kind of strategic portfolio work, an innovation readiness evaluation can identify whether your organization has the conditions to govern a portfolio effectively.
For a deeper look at the explore-exploit tension and how it plays out in real organizations, see explore vs exploit innovation.
To map where each initiative sits across your portfolio, the business portfolio map gives you a visual tool for allocation conversations.
When evidence says a project should stop but nobody will pull the trigger, see how to kill innovation projects for the governance and political dynamics.
Measuring explore projects with the right metrics requires innovation accounting that tracks learning instead of revenue.
Written by
Ton van der Linden
Founder and strategic innovation advisor. 25+ years in strategy, innovation and marketing, 100+ sessions with teams designing and testing business ideas at 50+ companies, and the only official Strategyzer coach in the Netherlands since 2016.
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