Top innovators have a winning and repeatable corporate total innovation model, which they apply and execute consistently through their businesses and operations. These firms consistently meet or exceed their innovation goals. Innovation portfolio management is a critical tool used to balance corporate innovation risk and return.
Portfolio management allows the firm and the innovation team to improve on the shaping and the speed of delivery of innovation projects. The effective management and monitoring of the portfolio, including project milestones, assessing the cadence of execution and project termination is essential for a successful total innovation program.
Many small and medium-size firms treat innovation projects as individual one-of projects executed by a few top individuals directed by the project sponsor or “the corporate initiative”. Innovators that rely on a systematic innovation portfolio approach often outperform these firms.
Portfolio identification and analysis
During the last few years working with high technology and advanced manufacturing firms we have developed a framework to identify, analyze and optimize corporate innovation. The innovation teams manager highlighted multiple challenges:
- How do we prioritize innovation ideas and kick off projects?
- How do we allocate effort and project cadence based on project delivery time frame?
- How do we identify top breakthrough innovation projects for the firm?
The solution was to implement an innovation portfolio management process to evaluate the return and the risk profile of each of the projects. Through the use of this tool we can maximize portfolio value, not individual projects, while managing and balancing portfolio risk.
We started by developing a set of project metrics and goals with the firm to manage corporate risk and return on investment requirements. These KPIs identify minimum and ideal limits for project performance. With the grid and the limits complete we can then map the current innovation projects as a portfolio.
The Balancing Act
The graph above identifies nine (9) projects currently under development for a customer. These projects showed a significant portfolio unbalance. The projects 2, 6, and 9 are in the ideal positioning. Projects 1, 4, and 8 are not acceptable based on corporate goals. Finally projects 3, 5, and 7 are in a space that requires increased oversight.
The Red Zone
The projects in the zone left of minimum limit are unacceptable per corporate goals. A deep dive portfolio review is required to identify next steps.
- Project 1: High risk and low return, terminate. Funds to be reallocated to higher return or new projects.
- Project 4: Low risk and low return, terminate. Funds to be reallocated to higher return or new projects.
- Project 8: High risk and medium return. Project is close to acceptable limits. Complete detailed review, identify and execute risk mitigation plan. Review performance monthly, if risk mitigation goals not achieved within one quarter terminate and reallocate budget.
The Amber Zone
The projects in the zone between the minimum and ideal limits require close scrutiny. A minor setback on the execution could move anyone of these projects into the red zone. A deep dive project review to be completed and monthly portfolio review required to identify next steps
- Project 3: Medium risk and low return. Identify opportunity to lower delivery cost and increase ROI, and develop risk management plan.
- Project 5: Medium risk and medium return. Identify opportunity to lower cost and increase ROI. To move to the ideal quadrants.
- Project 7: high risk and high return. Implement risk mitigation plan. Goal to lower project risk as it moves closer to commercialization stage. Support the team with key program manager with proven experience on high risk programs.
Innovation portfolio management allows the firm to prioritize projects and allocate innovation budgets to achieve a balanced innovation planning and strategy execution. The portfolio Risk-Return limits are variable and should be defined by the type of business and the market the firms play at.
Kinetik’s innovation project portfolio management process enables innovation and R&D executives to quickly and easily align project selection with business, marketing and technology strategy.
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Technology & Business Innovation
Tel: +1 248.924.5436