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Innovation Portfolio Management

Professional Service Innovation | portfolio management

Innovation is a means to an end, not a goal in itself. Innovation enables you to achieve your organization’s strategic objectives. Portfolio management is a tool to monitor whether you are on track with closing the gap between where your organization is and where it wants to be. Make a start with innovation portfolio management in four steps.

Building the innovation portfolio

Below we outline how to build your innovation portfolio in four steps. You don’t need a software package to do this.

Step 1: Define your organization’s strategic priorities

What are the strategic priorities of your organization? Is the objective to become leaner? Reach more customers? Reduce the number of safety incidents?

All of the above?

I would suggest identifying two to four priorities at most, and weighing them. How much emphasis would you like to place on each? Below is an example:

Lean                                                  30%

Reach more customers                 50%

Reduce safety incidents                20%

Total                                                100%

 

Step 2: Track all ongoing projects

Create a list of all ongoing projects, that is, all projects related to business development, improvement, innovation, research, etc.

You don’t need a lot of information for each of the projects, but at a minimum, you need to know:

  • Objective: To which strategic priority does the project contribute?
  • Status: When will the solution be implemented in practice (for research this may take years)?
  • Burn rate: How many resources does the project consume monthly (development costs,  FTEs)?
  • Complexity: What is the degree of complexity of the project or its deviation from current practices (how novel is the approach)?

Gathering information on all ongoing projects can be a daunting step, and many organizations lack an overview. Setting up an innovation management or project management platform is advisable, but not essential for this exercise. In fact, I would advise you to do the reverse. Start with a one-time collection of information to create a portfolio snapshot. Then use this snapshot to prove the value of portfolio management, and as an argument for why the organization would benefit from having an innovation management platform.

Step 3: Plot your portfolio

Use the information collected in Step 2 to plot your portfolio. You can do this with paper and pencil, but its simplest form is a spreadsheet bubble plot.

There are several ways to create the portfolio plot. We advise you to start with the following set-up, use:

  • The x-axis for completion duration
  • The y-axis for the degree of complexity
  • Color to indicate the strategic area the project contributes to
  • Size of each of the bubbles to indicate burn rate

The advantage of using this set-up is that you have automatically classified your projects in categories (see below).portfolio management basics

innovation portfolio management example

You can vary the x-axis and y-axis parameters and make them as sophisticated as the data you have for each of the projects.

Even though expected revenue is a commonly used y-axis parameter, we would like to warn against its use. Expected revenues are predictions at best. These predictions are typically somewhat accurate for short-term, low-complexity projects, but tend to be unreliable for innovation projects that are more radical in nature.

Step 4: Analyze

Analyze the projects in your portfolio. Some questions to ask:

  1. Are there sufficient projects to help achieve the short- and long-term goals for each strategic priority?
  2. Is the distribution of projects aligned with the distribution of priorities in Step 1?
  3. Are these the right projects? Will these projects get the organization where it needs to be?
  4. Can the organization support all these projects with current resources—e.g., capital and people?

Common challenges

In most organizations, paradoxically, there are too many projects and not enough projects at the same time.

Often, the projects in the portfolio do not help the organization achieve its strategic objectives. In other words, there is a mismatch between what the organization is doing and what it ought to be doing. Acknowledging this mismatch is the first step in fixing it, and explains the importance and relevance of portfolio management.

Getting your portfolio in line with your strategic priorities is the next step.

If you would like to get help in putting your portfolio plot together or would like to learn more about how to optimize your portfolio, please contact us. We are looking forward to assisting you with optimizing your innovation portfolio.

Readings:

Day, G. S. 2007. Is it Real? Can we Win? is it Worth Doing? Harvard Business Review(December): 110-120.

Wheelwright, S. C., & Clark, K. B. 1992. Creating project plans to focus product development. Harvard Business Review(March/April): 14.

Klingebiel, R & Rammer, C. 2014 Resource allocation strategy for innovation portfolio management. Strategic management journal: 35/2.