The Innovation Portfolio Management Model is a new approach to innovation management. It is a collection of five distinct “modules,” placed in a sequence that allows for the logical progression of an idea-based initiative, with continuously iterative feedback loops into the core areas of strategy and concept development.
Each individual module stands on its own as a uniquely separate business function, but also has direct dependency relationships with the other modules. The model gives equal weight to strategy development and the development of new concepts.
The framework ensures that a structure exists for innovation management, with appropriate boundaries, limits and flow, but which also does not interfere or compete with a firm’s daily business operations.
Diagram 1: The Innovation Portfolio Management Process
The modules: ‘Strategy Development’ and ‘Concept Development’ (on the left of the diagram under Strategy and Concept) start the process and occur in parallel.
Key to this design feature of portfolio management is that the organizational activity used to determine the overall objectives, goals, strategies, tactics and measures are conducted independent of research and development activity, which becomes a part of the concept development process.
The traditional, forced union between strategic and R&D activities this early in the process is self-defeating. There will be plenty of time in the next module of the framework to align the outcomes of these two separate functions.
In the Strategic Development function, the strategic leadership team can independently determine where they see the organization needing to be positioned in future and how they will get there from a tactical perspective.
This activity also ensures a focus on market and environmental trends, developing responses to various potential future scenarios and observing consumer preferences and behaviors.
While the strategic leadership team certainly collaborates with research and development on what is “possible” as one input to their overall decision making, the focus here will remain on establishing plans and roadmaps to ensure that the overall agreed upon strategic direction is followed.
The roots of strategy development lie in military tactics and extend into business operations. Formally defined as “a plan of action designed to achieve a desired goal,” in the context of innovation management, it is the vision, plan and direction of an organization, defined over a set period of time, and designed to achieve a specific business goal such as growth, profit, meeting the needs of customers, etc.
In order to adequately develop an effective strategy, organizations must be able to see into the future, define a purpose, mission and goal, analyze trends and current events, conjure up scenarios and develop tactics and measures for reaching the desired end state.
In order to adequately develop an effective strategy, organizations must be able to see into the future, define a purpose, mission and goal, analyze trends and conjure up scenarios.
Likewise, the Concept Development module ensures that the research and development teams can also independently assess market trends, research scientific developments, explore alternative uses for existing materials, develop potential new product/service feature enhancements and encourage innovative new thinking.
This deliberate separation from organizational strategy allows the research and development function not to be limited in their exploration and thinking.
This deliberate separation from organizational strategy allows the research and development function not to be limited in their exploration and thinking as to only what is planned from a strategic standpoint. This “blue sky” approach will ensure an appropriate mix of risk / reward initiatives in the innovation portfolio.
Typically the function of a formal R&D (Research & Development) business unit, however there are other “standard” business functions tasked with concept development activities such as New Product Development Teams, Project Teams, Creative Departments and “SkunkWorks” Facilities.
New ideas are introduced into the organizational system via a number of different sources: internal employees, open innovation initiatives (where anyone can submit ideas), continuous improvement programs, customers, suppliers or via purchasing / licensing intellectual property. In concept development, the purposeful search for problems to solve is conducted and any new ideas developed are further explored and tested:
Portfolio Development is where strategy and possibility are combined to ensure that the organization works on the right initiatives to maintain a growth focus and starts that work at the right time within identified near-term, mid-term and long-term time horizons. This portfolio-based approach explores risk, places initiatives into categories that align to strategic focus areas, manages resources, sets priorities and conducts time-boxing, sequencing and duration setting functions.
Portfolio management enables organizations to identify, select and manage the investments that will maximize business value. These “investments” are also known as projects, or product development initiatives. At the portfolio level, an organizational, cross-sectioned view of strategy is assessed and decisions on priority and resourcing are made to control the rate and direction of implementation.
Portfolio management approaches seek to optimize the organizational investments through the development of filtering and ranking criteria, analysis of business cases, evaluation of presentations and research reports, decision making on efforts to proceed, stop or hold, monitoring progress and fine-tuning resources and implementation approaches. In essence, the goal of any portfolio-based approach is to maximize the value of the overall portfolio and to balance the strategic fit, timing and sequencing, investment risk, operational capability and resource capacity.
The old corporate game of fractionalizing resources to satisfy everyone on the stakeholder list isn’t going to work if things really need to get done. Tough decisions, based on an honest assessment of the priorities within a portfolio, are required.
Once the portfolio of initiatives is determined, it integrates seamlessly and iteratively with the Execution Development module. This module is where day-to-day project operations are planned, executed, monitored and controlled. It is also where process development occurs and requirements, functional design, technical specifications, testing and implementation decisions are made. Review processes and decision making complete the circular feedback loop with Portfolio Development, thus ensuring that the individual efforts being managed within this execution-based module remain aligned to the appropriate strategic portfolio focus areas and time horizons. Monitoring and reporting make up the main feedback mechanisms utilized to ensure the initiatives either continue toward delivery or take some other action to change course.
“Execution” is one of those business concepts that holds tremendous promise, but is difficult to put into practice. In other words, it’s much easier said than done. However, execution is critical to any successful innovation management framework. In essence, without execution, you fail.
Execution can be broken down into a set of process steps or activities that enable an organization to implement a desired strategy. There are a number of different execution management strategies, tools, techniques and cultural behaviors available to transition from concept to reality. Our preferred execution method relies heavily on project management discipline, as the rigor it provides ensures that innovative ideas actually get implemented.
Finally, as the strategically aligned initiatives reach a maturity level that places them at the threshold of completion, they are transitioned to the Delivery Development module and are positioned with the strategies established by the organization for marketing functions, sales approaches, delivery mechanisms and established levels of support. Here, and at all previous modules, feedback loops are connected to both Strategic Development and Concept Development to capture whether the new products and/or services have met the objectives set forth in the strategic plan, solved the problems identified in R&D or generated lessons learned that can be captured and leveraged to improve upon or modify the current strategic or concept development direction.
By amalgamating a number of popular definitions for the term “innovation,” we forward our own definition, “The process of acting upon, or putting to use, a new concept or combination of concepts that creates new value and/or captures value in new ways.” Accepting this definition of innovation assumes that someone has found enough value in the new concept to exchange payment for its use. This is where the delivery, or commercialization, of innovation management is planned for, managed and executed.
Organizations who leverage this new portfolio-based framework for managing their innovation pipelines might expect to derive the following benefits from taking such an approach:
By Paul R. Williams
Paul’s article is excerpted from the Spring 2011 Research Report, “Is Stage-Gate The Right Tool for the Job? – Next Practices in Innovation Management, sponsored by the American Institute for Innovation Excellence. A full copy of the report can be found here.