Developing an innovation portfolio in turbulent times
Turbulent times require innovation
The newest research on innovation confirms the intuitive idea that the best strategy to address a recession is to innovate your way out. The research by Srinivasan e.a. (Should Firms Spend More on Research and Development and Advertising During Recessions? , published in 2011) confirms what famous CEO’s already knew:
“We have to innovate our way out of this recession with new products and technology” (Craig Barrett at the Intel developer Forum in 2002).
“The cure for Apple is to innovate its way out of its current predicament.” (Steve Jobs as quoted in Apple Confidential 2.0 by O. W. Linzmayer).
For me, it is clear that more rather than less attention and care is needed for innovation portfolios in turbulent times.
Turbulent times are tough for forecasting
However, as indicated in previous posts, proper portfolio management requires forecasting, especially for projects that have long-term impact (hence the logical link to roadmapping). Putting together reliable (or better said: a useful) forecasts is more challenging than ever in turbulent times. Extrapolation is surely not going to do the job for you. So how can we make meaningful innovation portfolio decisions in these times?
The power of a good portfolio management solution can be proven by supporting 3 key principles of better decision-making:
- Focus on real value drivers
The potential impact of project proposals should be linked explicitly to underlying demographic and scientific trends and not just sales numbers. This helps all stakeholders understand the nature of the value created. In my previous post on forecasting this is elaborated.
- Analyze portfolio robustness
In a good decision-making process for the portfolio, a lot of alternatives are created especially with wide range of future scenarios. This portfolio sensitivity analysis must go well beyond a typical 10% swing of individual trends. To establish a portfolio that is robust across a wide range of futures, a wider range of future scenarios needs to be considered.
In my experience, a significant share of the projects portfolio creates value independent of the details of the forecast, and another part of the robust portfolio consists of projects that balance each other across scenarios.
- Decide on action and monitoring
One of the main benefits of a properly stage-gated innovation process is the fact that the commitment for a project is only until the next gate. In turbulent times, it is even more critical to strictly implement this mechanism on approving projects to go ahead (and not falling into the analysis paralysis trap), but also on making sure that ongoing projects are revisited at each gate. If the portfolio robustness analysis is done well, a clear monitoring mechanism also unfolds: the assumptions (as laid down in the forecast scenarios) can be tracked and so-called early or weak signals on how the future is developing are picked up.
For a process perspective, portfolio review cycles are much more effective if they are in sync with this turbulence. This suggests quarterly or even more frequent portfolio reviews.
Requirements for portfolio management approach
The above considerations lead me to define the following key requirements in the portfolio management method:
- the method must support flexibility in decision-making (commit only to the next gate of the stage-gated process, or even only until key assumptions in the projects business case are invalidated, whichever occurs first);
- the method must support incremental updates at project level and at external trend level;
- the method must support real-time portfolio impact analysis of changing trends and of (even extreme variations of) future scenarios.
Do you share these requirements? Bicore’s FLIGHTMAP solutions implements portfolio management process support in a pragmatic yet powerful way.