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The Portfolio is the Pivotal Tool for Innovation Success

Thu, 05/02/2013 - 08:43 -- KevinMcFarthing

In a previous corporate life, I was on the board of trustees of a very large pension fund.  Our role was to ensure income in retirement for thousands of current and former company employees.  The key lesson I learned was that the most important decision we had to make was on the mix of investments in the portfolio.  The return had to link to the objectives and requirements of the fund, now and in the future.  Portfolio management was the pivotal tool for success.

It’s the same with innovation.  Having the right mix of projects to support today’s business and to grow tomorrow’s is critical for success.  While there are some companies where a small number of projects can make a massive difference; you can bet there are backups, alternative routes, and sub-project domains that effectively constitute a portfolio.  Innovation needs creativity for great ideas, excellent execution in product and service development, strong external and internal communication, committed and capable people - the portfolio is the tool that holds it all together.

The portfolio ensures the growth required by objectives and strategy can be delivered.  If the company is pursuing the Three Horizons approach or something similar, then managing the portfolio correctly will help you to do what’s needed to execute on the plan.  While stage and gate, project management, and other processes keep projects on track, they are a level below the portfolio.

Good portfolio management, in essence, enables companies to direct limited resources where they will have the biggest impact.  It clarifies the bets you’re making, the associated uncertainties and some of the related contingencies.  It enables you to cull the least attractive projects and to kill the zombies

So from my other corporate experience of leading innovation, here are some suggestions to make portfolio management both effective and efficient:

1.  Don’t be bureaucratic.  The more laborious you make it, the more people will see it as a task and not an enabling tool.

2.  Use it to guide decisions.  This has implications for the criteria used to prioritize; the data input; the associated metrics; and the complexity of the portfolio.  Be prepared to be pretty brutal with information that adds little or no value to the decisions you need to make.

3.  Aim more for accuracy and less for precision.  As an example, it’s better to have a “Top Ten” list of projects if all ten are funded, than to waste time ranking them from one through ten.

4.  Use it to engage different parts of the company in planning.  If the plan is handed down from on high in tablets of stone, there will be less commitment to implementation than if the planning takes account of each department’s capabilities and constraints.  As the old cliché says – it’s the planning, not the plan.

5.  Be wary of “portfolio creep”. When different groups have their own portfolios based on how each project affects them – without a clear hierarchy – inefficiency and chaos can result.  It isn’t rocket science for e.g. sales to take the portfolio information and work out how they need to spend their time.

6.  Create a flexible, up-to-date, and dynamic system.  As Greg Satell noted recently, even strategic planning is being challenged by the dramatic shortening of technology cycles, so portfolio management needs to be proactive to anticipate change and opportunity.

7.  Have a “go to” person. This person owns the admin side of the portfolio, and ensures regular input, review, updating and reporting.

8.  Get an IT system to support all of the above.  The system should be appropriate and proportional to your needs, and should take into account the other points outlined here.

Finally, don’t forget the portfolio is there to help you, not the other way round.  And if you want to learn more about how portfolio management helps ensure successful innovation, there’s a really good free online conference this month.

And by the way, the pension fund is still doing really well…….

Innovation Fixer is a sponsor of PIPELINE 2013 taking place on Thursday, May 16th. This free online conference features expert practitioners sharing their industry knowledge and thought leadership related to innovation, product development, and product portfolio management. Register now to reserve your spot. 

image credit - stc

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