innovation-portfolio

Innovation Portfolio

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  • Innovation portfolio management is the process of strategically selecting and managing a collection of innovation projects and initiatives to achieve an organization’s objectives.
  • It involves assessing the potential impact, risks, and resource allocation for each initiative, ensuring alignment with the organization’s overall strategy.

Key Principles of Innovation Portfolio Management:

  • Alignment with Strategy: Innovation initiatives must align with the organization’s strategic goals and objectives.
  • Resource Allocation: Effective resource allocation ensures that projects receive the necessary funding, talent, and support.
  • Risk Management: Risks associated with each initiative are identified, assessed, and managed proactively.
  • Performance Measurement: Ongoing evaluation and measurement of project performance help in decision-making.

Methodologies and Approaches for Innovation Portfolio Management

  1. Stage-Gate Process:
  • The Stage-Gate process involves dividing innovation projects into stages and evaluating their progress at each gate, allowing organizations to make informed decisions on whether to proceed, pivot, or terminate projects.
  1. Scoring and Ranking:
  • Organizations use scoring models to assess projects based on criteria such as strategic fit, market potential, technical feasibility, and resource requirements.
  1. Resource Allocation Frameworks:
  • Resource allocation frameworks help organizations allocate resources based on strategic priorities and project requirements.
  1. Balanced Portfolio:
  • Balancing the innovation portfolio includes diversifying project types, such as incremental, breakthrough, and disruptive innovations, to mitigate risk and maximize returns.
  1. Risk Management Strategies:
  • Strategies for managing risk in the innovation portfolio include risk assessment, contingency planning, and portfolio diversification.

Benefits of Innovation Portfolio Management

1. Strategic Alignment:

  • Innovation portfolio management ensures that innovation efforts are closely aligned with the organization’s strategic objectives.

2. Resource Optimization:

  • Effective resource allocation ensures that the right projects receive the necessary funding, talent, and support.

3. Risk Mitigation:

  • By proactively assessing and managing risks, organizations can reduce the potential negative impact of failed projects.

4. Informed Decision-Making:

  • Regular evaluation and measurement of project performance provide valuable insights for making informed decisions about project continuation or termination.

5. Innovation Diversity:

  • Balancing the portfolio with different types of innovation initiatives fosters diversity and helps organizations stay adaptable and competitive.

6. Faster Time to Market:

  • Streamlined processes and prioritization lead to faster development and deployment of innovative solutions.

Challenges in Implementing Innovation Portfolio Management

1. Resource Constraints:

  • Organizations may face limitations in terms of available resources, which can impact their ability to fund and execute all promising projects.

2. Resistance to Change:

  • Employees and stakeholders may resist adopting new processes or methodologies, particularly if they are accustomed to traditional project management approaches.

3. Complex Decision-Making:

  • Decision-making in innovation portfolio management can be complex, involving trade-offs between competing projects and strategic objectives.

4. Uncertainty:

  • Innovation initiatives often involve uncertainty, making it challenging to predict outcomes accurately.

5. Measurement and Metrics:

  • Determining the right metrics to evaluate project success and progress can be challenging and subjective.

Strategies for Effective Innovation Portfolio Management

1. Leadership Commitment:

  • Secure leadership buy-in and commitment to innovation portfolio management as a strategic imperative.

2. Cross-Functional Collaboration:

  • Create cross-functional teams that bring together diverse expertise to collaborate on portfolio management efforts.

3. Prioritization Criteria:

  • Define clear prioritization criteria based on strategic alignment, potential impact, and resource requirements.

4. Portfolio Governance:

  • Establish a governance structure that oversees portfolio management decisions and ensures alignment with organizational goals.

5. Regular Evaluation:

  • Implement a process for regular evaluation and measurement of project performance against established criteria.

6. Flexibility and Adaptability:

  • Recognize that the portfolio should remain flexible and adaptable to changing market dynamics and organizational needs.

Real-World Examples of Innovation Portfolio Management

1. Procter & Gamble (P&G):

  • P&G is known for its rigorous innovation portfolio management process, which includes the use of a Stage-Gate system to prioritize and evaluate innovation projects.

2. Microsoft:

  • Microsoft manages a diverse innovation portfolio that includes incremental updates to existing products, breakthrough technologies, and strategic acquisitions.

3. Pharmaceutical Industry:

  • Pharmaceutical companies use portfolio management to prioritize drug development projects based on market potential, therapeutic need, and research feasibility.

4. Amazon:

  • Amazon continually evaluates and prioritizes innovation initiatives across various business segments, from e-commerce to cloud computing and beyond.

5. Venture Capital Firms:

  • Venture capital firms manage portfolios of startup investments, carefully selecting and nurturing a mix of companies with growth potential.

Conclusion

Innovation portfolio management is a strategic approach that empowers organizations to achieve their innovation and business objectives efficiently. By aligning innovation efforts with strategic goals, optimizing resource allocation, and proactively managing risk, organizations can enhance their competitive advantage and drive growth. While challenges such as resource constraints and resistance to change exist, the benefits of strategic alignment, resource optimization, and informed decision-making make innovation portfolio management an essential tool for organizations seeking to thrive in dynamic and competitive markets. As innovation continues to be a critical driver of success, innovation portfolio management remains a guiding principle for those committed to navigating the path to strategic success.

Related FrameworksDescriptionWhen to Apply
Technology Readiness Levels (TRL)– Description: A systematic metric-based approach to assess the maturity of a technology, ranging from basic research to commercially available products. TRL is valuable for evaluating the readiness of technologies within the innovation portfolio and prioritizing further development.When managing technology-driven innovation projects and assessing their readiness for commercialization.
Ansoff Matrix– Description: Helps businesses identify growth opportunities by analyzing market penetration, market development, product development, and diversification. Ansoff Matrix is useful for determining the direction of innovation efforts based on existing products and markets.When considering strategic directions for innovation initiatives and market expansion.
Innovation S-Curve– Description: Represents the life cycle of innovation, depicting the adoption rate of new technologies or products over time. Innovation S-Curve is useful for assessing the stage of maturity of current projects and identifying opportunities for future investments.When evaluating the progression of innovation initiatives and planning for future investments.
Three Horizons Model– Description: Divides innovation efforts into three horizons: sustaining innovation (H1), disruptive innovation (H2), and transformational innovation (H3). Three Horizons Model is useful for balancing short-term gains with long-term transformative initiatives within the innovation portfolio.When developing a balanced innovation portfolio that addresses both immediate and future needs.
Lean Startup Methodology– Description: Focuses on rapid experimentation, validated learning, and iterative product development to minimize waste and maximize innovation outcomes. Lean Startup Methodology is applicable when launching new ventures or products with uncertain market demand.When initiating new ventures or projects with limited resources and high uncertainty.
Design Thinking– Description: Human-centered approach to innovation that emphasizes empathy, ideation, prototyping, and testing to solve complex problems and deliver user-centric solutions. Design Thinking is useful for generating innovative ideas and designing user-friendly products or services.When seeking to understand customer needs deeply and develop innovative solutions to address them.
Blue Ocean Strategy– Description: Focuses on creating uncontested market space by offering innovative value propositions, rather than competing in crowded markets. Blue Ocean Strategy is relevant when aiming to differentiate products or services and create new market opportunities.When exploring opportunities to innovate by redefining industry boundaries and creating new demand.
Real Options Framework– Description: Applies financial options theory to assess the value of investment opportunities and flexibility in decision-making under uncertainty. Real Options Framework is useful for evaluating the flexibility and strategic value of innovation projects over time.When managing innovation portfolios in dynamic environments where uncertainties are high.
Open Innovation Model– Description: Advocates for collaboration and sharing of ideas both internally and externally to leverage external knowledge and accelerate innovation. Open Innovation Model is relevant when seeking to tap into external expertise, technologies, or markets to drive innovation.When aiming to access a broader range of resources and capabilities beyond the organization’s boundaries.
Balanced Scorecard– Description: Provides a holistic framework for strategic management, translating vision and strategy into actionable objectives across financial, customer, internal process, and learning and growth perspectives. Balanced Scorecard is useful for aligning innovation initiatives with broader strategic objectives and monitoring performance.When ensuring that innovation efforts contribute to the organization’s overall strategic goals and objectives.

Read Next: Business Model Innovation, Business Models.

Related Innovation Frameworks

Business Engineering

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Business Model Innovation

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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.

Innovation Theory

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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.

Types of Innovation

types-of-innovation
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).

Continuous Innovation

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That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.

Disruptive Innovation

disruptive-innovation
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.

Business Competition

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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

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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.

Diffusion of Innovation

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Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.

Frugal Innovation

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In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.

Constructive Disruption

constructive-disruption
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.

Growth Matrix

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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).

Innovation Funnel

innovation-funnel
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.

Idea Generation

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Design Thinking

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Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.

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