A time will come when firms have to face difficult and challenging situations. Preparing for them and eventually fighting through those obstacles cements their position in the market. Firms thus develop appropriate innovation strategies so that they can adapt to the changing conditions. They can also correctly implement specific initiatives that are strategic throughout their firms.
Innovation portfolio or Innovation Portfolio Management (IPM) is a particular tool to convert strategic priorities and objectives into innovation activities, which are project-based. Based on the risk profile, the innovation portfolio also provides a framework to transform rough ideas into real investment opportunities. A large number of resources are always used to invest inan innovation portfolio. It is to be noted that innovation portfolios are not only for product innovation alone but also for process, service, and business model innovation efforts.
Why is Innovation portfolio significant?
There are many reasons why the importance of an innovation portfolio has been highlighted. Below are a few of the most relevant and widely followed ones.
Innovation portfolio is a risk management tool. When more and more innovations are bought into action, the number of resources and investments increase which in turn means in the increase of risk factor. So it is essential to minimize the risk factor. It is critical to have more innovative projects underway than the traditional companies so that we can stand out in the market. Innovation portfolio supplements visibility and that lets the business stride into new services and products.
Having a wide-range view of the initiatives executed over time can help to avoid either overwhelming or underwhelming the marketplace.
An innovation portfolio is also a time management tool. It helps to observe and evaluate the time required to start a new initiative and move a completed one into the marketplace or manufacturing. It can also be used to show potential opportunities to leverage in processes, technologies, markets, and products. This will enable the business to profit from all the innovations while decreasing the production cost and overall risks. It should be noted that the innovation portfolio is not just a list of projects and initiatives.
It is essential because it is used to compare these initiatives with others based on the risk factor, strategic fit, requirements of resources, stretch as well as potential return.
Out of the above factors, the right balance between strategic fit and stretch is important. It should be kept in mind that reacting continuously to the ever-changing market trend is dangerous, and it is vital to follow a particular course until the change is significant. The key is to maintain strategic alignment, run tests on innovations, and analyze them so that the risks due to short-term thinking are minimized.
How to manage an innovation portfolio?
The management of an innovation portfolio is not just about visualizing a list of projects. It is a system of leading a group of innovative projects that will eventually end up victorious in the market. Innovation portfolio management is defined as the stable planning and controlling of a portfolio of initiatives designed to provide the highest overall value for the entire firm. It can be divided into strategic and operational parts.
Strategic Innovation Portfolio Management
Due to the ever-changing market rules, it is difficult to determine precisely the future. Transitions in the business can be termed as fluid because strategy needs to be aligned in a fluid way. This means that the strategies must be flexible to adapt to continually changing conditions. Companies fail when they cannot successfully integrate the transitions into the company. As said before, resources and capital should be allocated in such a way that they maximize value while reducing risk. This is why it is necessary to establish a portfolio management system. A strategic innovation portfolio is operated by a project management office or corporate center covering short-term and long-term initiatives.
While innovations lead to short-term returns, they also play a significant role in securing long-term survival. However, there are instances where many firms become successful in their short-term profits but fail miserably in the long-term gains. Hence, sustainable innovation portfolio management must aim to find and grow future businesses in parallel to successfully optimizing current ones. Companies should be careful and comfortable with experimenting with new products, business models, and technologies. It has been identified that innovation portfolio management is one central area to control innovation risks sufficiently.
As mentioned above, the Portfolio Management Board is in charge of strategic decision-making regarding innovation portfolio management. The main tasks of the Portfolio Management Board are outlined below.
Regular evaluation and prioritization of the innovation portfolio
The innovation portfolio is periodically assessed through financial, risk-related, and strategic means. Based on this assessment, project shuffling, prioritization, and reprioritization happen transparently, and projects that don’t meet the minimum requirements are scrapped. The ability to survive in changing conditions is the primary advantage of the digital portfolio approach. As criteria for prioritization and evaluation of specific projects could change over time, recurrent reviews allow for the firm’s direction of impact to be adjusted.
Evolutionary selection is the central principle followed by the management of innovation portfolios. This means the decision to scale up the initiative is only made after receiving the data from previous projects. This leads to investments depending on the risk factor involved.
Allocation of resources based on strategy and priority
Resources are allocated based on the impact of the portfolio’s prioritization. Strategic resource management involves including resource availability constraints in analyzing alternative portfolio compositions. If the above-said portfolio requires more resources than the allocated number, it will delay the project to the limit or even affect the resource pool size.
Entry and exit of innovation proposals
New initiatives are selected very carefully after rigorous scrutiny. Due to a variety of factors that influence portfolio management, interdependencies and stakeholders are highly complex. To maximize profits, the above conditions should be appropriately met.
Operational Portfolio Management
Operational Portfolio Management implements the innovation strategy. While there are other key elements in innovation management, such as project management, governance, and Stage/Gate, the operational portfolio management takes care of what happens with the strategic intent. Converting the purpose into a plan helps implement the current portfolio and carry out multi-project management efficiently. Just like a dashboard, operational portfolio management allows for integrated planning and resource allocation through tactical methods. By allowing control of interdependencies across on-going projects, maximum efficiency across the entire innovation portfolio is achieved.
Operational portfolio management is essential because it crosses over the complex arrangement of dynamic change, incorporating multiple interrelationships, to utilize it efficiently. After the major operational reviews, the functional elements of the portfolio management are reviewed. The reports should be at a frequency appropriate to the product development cycle as well as to the business cycle. Several iterations are passed till an integrated portfolio plan is reached. Just like strategic portfolio management, project management boards are also used here for operational product management. Executive portfolio management can also raise danger warnings if there are significant project plan variances, strategic misalignment or resource clashes.
The innovation plans align with the resources available during tactical resource management. This ensures that individual skills are balanced across project requirements. A project and Portfolio Management (PPM) system, an IT support, is used to remove the complexity of the project portfolios. Systems such as Kalypso, Microsoft Project, Flight Map, or Plainview are used to manage projects in the operational portfolio management approach.
There is a wide gap between a strategy and what happens. Integrating strategic and operational portfolio management decreases the gap, ensures optimum resource allocation and alignment, and successfully implements great ideas. Innovation Portfolio Management at the Strategic and Operational levels is a crucial tool for business growth.
Following the rules of innovation portfolio management increases the hope that the project ideas will be successful. It is a significant way to battle competition between rival companies. Managing an innovation portfolio has become a web of tools designed to help businesspeople and entrepreneurs alike bring out the best in their projects.
