5 key elements of innovation portfolio management process
Earlier this week, one of my clients asked me my opinion about portfolio management process models. I remembered a presentation I prepared two years ago to answer that question and reviewed the slides. They summarize the 5 key elements of a good portfolio management process.
Definition of good portfolio management
Establishing what makes good portfolio management, I started with Bicore’s definition of innovation portfolio management:
the decision-making process of selection of innovation initiatives, and the allocation of resources accordingly, to maximize innovation results against acceptable cost and risk
The best innovation portfolio is build from a continuous flow of good alternatives into a business led portfolio board, taking high quality decisions that are implemented swiftly. So it is about people and about process. The people involved include the initiators, champions, teams, or whoever proposes and executes initiatives, as well as the portfolio board that takes the decisions about the portfolio.
The process is a continuous one, in which the portfolio board evaluates its options based on (master) data about the initiatives from the teams.
Here are the 5 key elements
This leads to the following 5 key elements in the process:
1. Clarity on strategic intent
By making sure the innovation strategy is well-defined, everyone knows which proposals will be welcomed. This strategic intent needs to be defined in terms of goals: what do we want to achieve with our innovation portfolio? Think of strategic goals such as ”growing the topline with $1bln in the next 5 years”, or ”becoming number 1 in market share in Europe”. The strategic intent also provides preferred routes to that goal (such as “getting 50% of the projects from external sources”), as well as any strategic constraints (such as “with at least the same profit margins”, or “with a reduction in environmental footprint of 20%”). In the ideal portfolio management process, the strategy also includes the company’s risk appetite (“how much risk are we willing to take in order to achieve our strategic goals?”).
Clarity on strategic intent allows everyone to develop relevant proposals. It creates a level playing field for good ideas and it aligns decision-makers and innovation teams on common goals. It also helps teams of running projects to make sure they are still aligned with strategy.
2. Flow of good proposals
If portfolio management is a decision-making process, it logically follows that multiple options need to be available (at least more options than we can serve within our resource constraints). Portfolio management is only meaningful with a continuous flow of good innovation proposals. This flow follows from a well-organized innovation front-end. This front-end stimulates collection and sorting of good ideas and proposals from all sorts of sources. These include customer feedback and unmet needs, technology roadmaps, supplier input, employee ideation, trend analysis etc. It helps if everyone involved in this process understands that not all good initiatives can be selected. Disappointment about ideas not selected should not lead to a negative feedback where the front-end process is loosing momentum (“why submit a new proposal if my previous one was not selected…”).
3. High quality decision analysis
To prepare for a good portfolio decision, the analysis of the options needs to look at choices that best meet the innovation strategy at the portfolio level. The analysis obviously will be build on data at the level of individual initiatives, but must be taken to the portfolio scenario level. Only then can we answer the question if the portfolio meets the innovation strategy within the resource constraints. Portfolio management is so much more than individual project selection.
The minimum set of master data from each initiative includes its description and classification, its contribution to the strategic goals, the business case (in terms of cost, risks, and value), and the resources needed. Key parameters of the market, customer, and technology need to be in as well. Both proposed and running initiatives need to be included in the analysis, so they can all compete for the available resources.
Whether the decision analysis is done by the portfolio board members themselves or by dedicated portfolio analysts, this analysis is a key step in the process. It results in a qualified assessment of the portfolio-level options for the board.
4. Aligned decision-making
The portfolio business board then makes the call on which of the portfolio alternatives best satisfies the strategic goals. This is not a mathematical optimization of the options, for a number of reasons (see my earlier post). The board members are also in charge of translating the decisions into action. They need to inform the teams (why their initiative has a go or why it will not run or continue). They also have to update the resource budgets and trigger the underlying tactical processes.
This means the portfolio board should include those executives that can best decide on the strategic fit as well as the executives that are responsible for the resources involved. Both need to have the leadership capability to explain the portfolio decisions.
5. Buy-in for decision execution
A decision is only as good as how it is implemented. This means the teams executing the innovation activities need to be in the clear in why their innovation was chosen (or stopped). The portfolio delivery can only be succesful with everybody’s full support for the portfolio decision’s consequences. This does not mean that individuals or teams should not have the room to mourn if their project cannot be executed; it means they can redirect their efforts to other, more relevant initiatives (in due time).
A great way of summarizing this attitude is the following quote (attributed to Colin Powell):
“When we are debating an issue, loyalty means giving me your honest opinion, whether you think I’ll like it or not. Disagreement, at this stage, stimulates me. But once a decision has been made, the debate ends. From that point on, loyalty means executing the decision as if it were your own.”
A final thought on this buy-in in the best-run portfolio management processes:
everyone involved understands why the portfolio is composed the way it is
everyone is inspired to submit better proposals where they see fit
everyone understands there are more good proposals than resources to execute
everyone understands that every now and again a good proposal is so disruptive it triggers an adjustment of the innovation strategy