Whether your company is small or large, your success in innovation will depend on having a suitable portfolio or pipeline of innovation projects and programs. And also, to manage it in an agile and efficient way.
What is an innovation portfolio?
A set of ideas, projects, and programs that the organization is managing as it would with a set of investments, in order to obtain explicit results and objectives focused on an innovation strategy.
It is a part of the innovation process that channels project management and at the same time balances the expected benefit with the investment and risk.
It is a preparation for the creation of the future because it explores the best future possibilities of success and the new opportunities or options for the development of the organization.
Each individual project is a learning effort toward the goal of overall success.
It’s not a linear process. Companies that innovate continuously and not occasionally, require a continuous iteration between different steps of this process, and we represent in a way as in image 1.
How is this portfolio of projects built?
First of all, I must say that the projects are going to be the result of a successful selection of initial ideas and that these are not usually the result of random occurrences but of a generation process and with a continuous link with the organization’s strategy. .
We already talked about this in “Innovation: ideas or strategy”.
On the other hand, all the development of an innovative portfolio and its management has to do with the concept of risk. Risk is present in every project and therefore its knowledge and the fact of assuming it to a certain degree, becomes an essential element.
The environment changes in an accelerated way, so that risk increases, and agility becomes more necessary.
As with any portfolio, some of the projects will work fine, while others will not. In the case of the innovation portfolio, the disparity between success and failure will be very wide, because at heart it is a tool for disciplined exploration, and necessarily assumes the minimum but necessary risk to successfully cope with the speed of change.
In selecting ideas to transform them into projects in our pipeline, we will have already considered, in part and among many other things, the degree of risk involved in each initiative.
Types of innovation
Depending on the situation of our organization in the life cycle of the activity and the life cycle of our products or services, we may distinguish different types of innovation:
• Breakthrough or radical innovation.
Creation of a new product or service that opens a new paradigm or category. We are in the early phase of the life cycle curve, quantities are still low, prices and margins are high. We are creating a company, or an activity, a product or service and we do it by innovating from the beginning, with a new technology, or a new concept or design. Example: The Prius project from Toyota, in its time opened a new concept (hybrid), in the automotive sector, which was then followed with the fully electric car.
• Growth or incremental innovation.
We are in the phase of high growth of the activity or product. The important thing is to grow and maintain or increase market share and, if possible, leadership. Maybe in the end we want to explore new segments. We make incremental innovations on the same existing concept and improve it, turning it into something different, which puts us in a better position. Returning to the automotive sector, incremental innovations occur in all brands, in each model, redesign etc. providing new elements that perfect the original. They can incorporate new technologies, systems, or sales channels, etc.
• Innovation for a new business model.
New business models are new ways of generating resources taking advantage of new or different customer experiences. Like radical innovation, it can also transform the market structure by changing the paradigm, expectations, attitudes, and buying patterns of customers.
It is about the creation of a different positioning in the market, that takes advantage of our strengths in some fields, be it products, technology, customer experience, distribution channels or brands. Some examples: Time ago, the ‘low cost’ airlines or the ‘online’ retail trade, or a new way of selling coffee in capsules and with a special machine, etc. In the automotive field, the ‘Smart’ was once a new business designed for the urban customer, which has gradually been integrated into the original Mercedes brand.
• Innovation for a new start or company.
The fourth type of innovation arises when a company recognizes that it is necessary to explore and develop a completely new market and realizes that the best way to do this is through a new brand, a new division, acting in a different sector or parallel or perhaps with a new company. Consequently, innovations in startups are long-term oriented.
It may be an innovation project that actually totally reinvents or redesigns the original company. New company innovations can expand existing companies into new territories, markets, or previously unexplored segments. The objective generally seeks to ensure long-term returns. As examples, again from the automobile, Lexus or Infinity were really launched as startups for a segment of the ‘premium” car that their original brands did not reach.
As we see in the previous examples of the automotive sector, the same company practices or can apply the four types of innovation at the same time to the development of its future.
Purpose of the innovation portfolio
The portfolio or ‘pipeline’ of innovation has essentially two purposes.
First, it is a learning system that will improve our methods to achieve our project development for the future.
Through the innovation strategy, it will also help us deal with the problems of uncertainty and change.
Finally, and at the same time, it also reduces the unavoidable risks inherent in the innovation process itself. It does so by structuring the process of creating new products, services and business models for the future.
The risk. How to deal with uncertainty?
As mentioned before, the concept of risk is very present in all innovation and in each project.
There will be no innovation without assuming a percentage of risk.
In general terms, we define various types of risk for the company and we also associate it with the types of innovation mentioned, which we previously related to the phases of the life cycle of an activity or product.
- Risk of obsolescence or interruption of a market due to the emergence of a new technology, new concept, or category. A breakthrough that radically alters the dynamics of the market. We need radical or breakthrough innovation. It also usually requires emergency innovation.
- Risk of loss of market share. For different reasons, entry of new competitors, product improvements, new customer value propositions, prices, etc. We need incremental innovation.
- Risk of change in the customer’s experience, due to expectations or needs that have been improved in other experiences or proposals. Changes in the service, in the value proposition etc. We need to innovate to create a new business model.
- Long-term business risk, loss of activity due to different causes, aging of the product or service, excessive competitive pressure, and low prices (commoditization). We need a diversification of the activity or start a new company or activity that provides us with the resources to maintain ourselves.
In the four types of risk, the four types of innovation are usually applied:
|Risk of market disruption||Radical or disruptive innovation|
|Market share risk||Incremental innovation|
|Customer experience risk||Business model innovation|
|Long-term business risk||A new start or business innovation|
In general, in any organization there will be activities, products and services in different risk situations. Therefore, in the innovation portfolio there should also be different projects aimed at the target types of innovation.
It is not only convenient to see the risks with the focus on our own organization but to extend the vision to our entire sector, also analysing the risks in the face of changes in it.
And the failure?
We can say that an adequate management of the innovation portfolio provides us with a proven method for managing investments, in the face of uncertainty, inherent in all innovation efforts.
Just as investors create portfolios to help them achieve optimal returns by choosing the level of risk that is most appropriate for them, the innovation portfolio provides us with a tool to do the same for the innovation projects we are working on.
Some of the projects in your portfolio may never be used, but there would still be reasons to develop them, since their purpose is to prepare us for a wide variety of future scenarios, some of which will never arise in reality.
It would also be a new approach to failure if it comes. Because, apart from the fact that they have been useful and prudent precautions, they have provided valuable learning.
And ‘learning’ as an organization is valuable in a changing world where the knowledge generated will serve to generate new ideas and react more agilely to unforeseen needs.
Learning faster is also important because it facilitates the capabilities to systematically reduce cycle times, it is also a valuable agility tool.
What are we going to invest in?
The next step will be to design our innovation portfolio based on existing or possible ideas and projects and assess them based on the necessary investment.
With limited resources, as almost always, we will have to decide how we balance our investment portfolio based on risk assessment, according to the types of innovation of each project.
That is, we are going to decide the % of the total investment in innovation that the company should make in each category or for each type, in order to have an adequate balance.
Not forgetting that this is an initial and hypothetical balance and allocation, which will be validated as the portfolio development process continues.
Design of the Innovation Portfolio.
We assume that if the company is up and running, and surely it will already have projects underway. Therefore, we are not starting from 0. Only in the case of new companies will we really start from 0 in an initial design of an innovation portfolio.
In most cases, there will be projects in different phases of their development, some that are already being completed and others in an Intermediate or early phase.
We actually redesign our portfolio each time we incorporate selected ideas and turn them into formal innovation projects. Also, every time we group some projects under the same program. Furthermore, every time we eliminate one or more of the projects from the portfolio, because we no longer consider that it is useful to invest more in them and thus it has been decided on one of the ‘doors’ of the ‘stage & gate’ process.
At these times of redesign, it helps to review the entire portfolio. We can therefore speak of “design” of it.
Briefly, we consider 6 steps in this design:
- A strategic alignment. Is or is the portfolio in line with our innovative strategy? It is a subject to consider, discuss and above all, evaluate.
- Is the selection process still suitable and adequate? Do we really take into account what is necessary to face possible changes and imaginable scenarios? We may need to modify the selection criteria and templates to the current reality.
- A review of our investment model. Does the investment agree with the expected benefits? And this in general and in each of the types of innovation or projects.
- We review project by project, to check if your objectives, budget, degree of progress, expected results, etc. are still valid. And we do it with our agile methodology, adapted from recognized best practices.
- We plan new sessions to analyse future scenarios, and structured systems for generating ideas, to deal with these scenarios.
- Finally, it is necessary to learn from the entire process, make explicit the lessons learned from successes and errors or failures, in the process and in each project, to recycle them in the future. We continue to measure the results of the launches and indicate the first benefits obtained. With measures and indicators. Do not forget that we are not in a linear but concurrent and iterative process, and that in some cases we need to pivot towards an alternative model or project.
Innovation prepares us for the future. Therefore, it collides with the great difficulty of predicting what this future will be.
Increasingly, we see how change is accelerating, emerging new scenarios hitherto unforeseen, not even known.
None of the above will help if, before designing our innovation portfolio or what is the same, the “pipeline” of our projects for the future, we have not studied the factors that are beginning to show and that will be the drivers or causal factors. of upcoming changes of scenery.
All this constitutes the preparation of an innovative strategy, which is what we will see in a next post.