Advancing technology, global competitive pressures and dynamic market expectations have made businesses realize that their sustainability depends on their ability to innovate. Although innovation flourishes in nearly every small and big organization, most of it is still done in isolation and is sometimes not even linked to the company’s strategy. Research elucidates that not all innovations are successful. The issue does not lie in innovating per se but arises from “how” companies manage their innovation process.
Traditionally, companies have innovated in silos — the focus being on developing new products individually. Very little attention has been paid to improving and managing the entire product portfolio. The narrow focus on individual innovations may lead to inefficient allocation of resources and sub-optimal returns. What companies need to do is look at their entire portfolio of ongoing new product development projects. This process known as innovation portfolio management would not only help maximize the portfolio value, but also help companies gain a competitive edge.
Innovation portfolio management is directed at the optimization of a company’s innovation portfolio. Instead of focusing on individual new product projects, it entails a continuous process of selection, evaluation and prioritization of new projects. This also necessitates the acceleration and termination of ongoing projects thereby, helping the companies achieve leaner innovation processes. This iterative method also supports appropriate resource allocation among different projects and helps companies attain a competitive edge.
While there is no ‘one size fits all’ solution to implement this, organizations can set-up and manage an innovation portfolio by assessing their risk appetite and analysing their strategic goals. Just like maximizing returns on financial investments, the management’s objective should be to construct a portfolio that produces the highest overall return balanced with their appetite for risk. This risk-bearing capacity will also vary depending on the competitive position of a company in the market as well as its stage of operation in the product life-cycle. A start-up may want to pursue high-risk innovation in the hope of creating a disruptive product that would radically alter its growth curve. On the contrary, a company that wants to retain its leadership position or believes that the market has cooled for its more ambitious innovations, may decide to do the reverse. This would imply removing some risk from its portfolio and shifting its emphasis from disruptive to incremental initiatives. In short, when to innovate and how much to innovate will solely depend on the company’s strategic stance and innovation portfolio management can help take this decision.
Innovation portfolio management includes continuous decisions about portfolio size, i.e., the right number of active projects relative to the available resources. The process also helps balance the right mix of different types of projects, such as long-term and short-term projects or incremental and radical ideas. This enables companies to take a decision on what innovations to focus on and thus, achieve a strategic fit concerning investment decisions and strategic priorities. A combination of multiple tools such as decision trees, assigning scores to different process and resources, project illustrations, and plot diagrams can assist companies in managing the process holistically.
Companies may face many challenges while managing an innovation portfolio. If not implemented correctly, it may lead to diminishing returns on a possibly huge investment. Therefore, a significant shift is needed to manage the innovation system, which will require companies to be more disciplined in their approach. It is imperative to strike the right balance between a company’s new product portfolio and its strategy. The company should also carefully evaluate its capability in terms of skilled resource availability, and then consider the disruptive and incremental innovations together.
This process also essentially requires that managers from different departments who are involved with product development agree on an appropriate level for innovation and find a common language among them. This imposes a strong need to establish effective communication processes between all those involved. Companies should therefore ensure a robust information sharing mechanism between various departments that will lead to effective decision making for portfolio management. Consequently, companies can strengthen their competitive position concerning new technologies, patents and markets; and advance towards product innovation excellence by realizing shorter and leaner innovation processes.
Whether your company is a new entrant in its segment or an established market player that is innovating to sustain its market share, innovation portfolio management narrows the gap between strategy and what happens on the ground. The process ensures alignment, optimum resource allocation and ultimately, the successful implementation of great ideas, making it a pivotal tool for business growth.
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