Any enterprise, both big and small, must look to innovation not just to survive, but also to thrive. Predicting which directions the market will go and the right risks to take is a challenging goal, and requires several factors to ensure that each base is covered. Among them is portfolio management, a valuable method of organizing the innovative ambitions of any company. Project-based businesses – such as IT service providers, consultancy, and research firms – turn project portfolios into an expertise; enterprises focused on market risks (e.g., film studios, recording labels, VC firms) often decide on taking one single bet, preferring to manage an entire portfolio of projects and ventures.
Aspects of portfolio management
The projects are centralized and geared towards achieving the organization’s best innovation goals. Portfolio management is a skill, and as such it richly improves when certain factors are consistently improved. The necessary factors for a thorough and successful portfolio include:
Clear upfront agreement and understanding on the organization’s innovation goals. To effectively manage an innovation portfolio, it is vital to be upfront about the organization’s innovation goals and objectives. Why there is a preferred approach to undertaking a portfolio of projects, instead of, for example, one major innovation investment or an integrated continuous development program? How large is the aspired, collective impact of the portfolio of innovations? At what point can results be expected?
Clear selection criteria for projects to be admitted to the portfolio. Every project demands resources and management attention. Hence the need for strict criteria, typically along three dimensions:
Potential value of the innovation project (can it potentially be huge?)
Quality of project leadership (are innovation leadership competencies in place? Is the dream team secured? Are at least one or two senior sponsors excited and committed?)
Ability to deliver (can the company’s assets, skills, and relationships be leveraged? Is there a competitive edge?)
Innovation project funding based on small, bite-sized steps to enable quick learning and pivoting where needed. Traditional annual budgeting processes are typically too slow and sluggish to properly support innovation projects that need fast and agile funding. Instead, innovation projects need small chunks of funding, released as projects hit their key external metrics.
Progress tracking based on external metrics. It is important to avoid focusing on internal metrics when tracking progress on innovation projects. Giving too much consideration to the hours worked, the excitement of the project team, internal audit, etc., can give a false sense of progress. Metrics are ideally measured with external factors: customer interview and market research results, customer feedback from the pilot or prototype, first launch customer commitment, and first customer revenues secured.
A portfolio manager that is empowered to make decisions and incentivized on success of portfolio rather than performance of individual projects. Often, the portfolio manager will manage the process and be expected to support every project in the portfolio. This will quickly lead to an explosion of resource requirements as lagging projects start to request more and more support.
Management and resource allocation based on probability of success. The portfolio manager should ensure that the most successful innovation projects can move forward as fast as possible, and that failing projects are terminated before external commitments have been made and too much budget has been wasted.
Every innovation project is expected to keep focus.Focus means upholding a strict customer orientation, changing course when the project is stalling, and spending budget as if it is one’s own money.
Culling failing projects should not have personal consequences for the project team. Projects often fail because of hidden false assumptions, and not because of lack of commitment or execution skills (which can be avoided through proper orchestration of the project team). Discovering these false assumptions constitutes organizational learning. The project team members document and share these learnings, and then move on to the next project.
Progress tracking and information sharing are key IT needs. By tracking the progress of each project in a real-time, transparent way, resource reallocation can be swift. Through information sharing between the teams, cross-team learning is institutionalized and teams are more motivated.
Innovation takes time to adapt and perfect. The process will take unexpected twists and turns along the way, and requires a centered mind and direction to avoid getting swayed in opposing paths. Any enterprise would benefit from a portfolio on innovation management, to accurately calculate the steps that led to either success or failure.
Menno Van Dijk, Co-founder and Managing Director at THNK. School of Creative Leadership. Menno is a Former McKinsey Director, working in strategy, organizational design and operational improvement in Media, High Tech and Energy. Functional focus: growth, innovation, digital. Was leading McKinsey’s European Media practice for 7 years. Created NM Incite, McKinsey’s first ever co-branded JV with a third party, Nielsen. NM Incite helps businesses harness the full potential of social media intelligence to drive business performance and is active in 22 countries. Work experience in most European countries, US, Australia, South Africa, China and India. Has lived in Netherlands, Australia and South Africa.
Rajiv Ball, Partner at THNK. My professional life has been shaped by the 13 years I spent at McKinsey & Company. For most of that time, I worked in oil and gas and retail – I used to travel the world, turning around gas station networks! – before I found my passion in leadership development. During my last years at McKinsey, I was responsible for the leadership development of our 1,500 Partners globally. Today I get tremendous high from working from my strengths and passions and building an institution – THNK – that will hopefully be lasting legacy. Within THNK, I’m responsible for the Quest (our leadership curriculum), as well as our Corporate Programs and new locations.
THNK‘s mission is twofold: we accelerate the development of creative leaders from across corporate, private, public, and social sectors and from all over the world. Together, we create innovative solutions to the world’s most pressing and inspiring challenges. Dubbed by Stanford University as “the future of higher education”, we stand for creativity, business model innovation, and entrepreneurship for social impact. While a ‘B-school’ professionalizes management and a ‘D-school’ does the same for product design, THNK is a ‘C-school’ that applies creativity for positive change at scale.
This article was originally published on THNK.org. Main image: Staff presented the project to the executives from Shutterstock.com
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