Any enterprise, big or small, must look to innovation not only to survive but 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 centred 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.
