What is innovation portfolio?
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, innovation portfolio also provides a framework to transform rough ideas into real investment opportunities. A large number of resources are always used to invest in innovation portfolio. It is to be noted that innovation portfolios are not only for product innovation alone but also for the process, service, and business model innovation efforts.
Why is Innovation portfolio significant?
There are many reasons why the importance of innovation portfolio has been highlighted. Few of the most relevant and most widely followed them are described below.
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.
Innovation portfolio is also a time management tool. It helps to observe and evaluate the time required to start a new initiative as well as to move a completed one into the marketplace or even into manufacturing. It can also be used to show the potential opportunities which can be used as leverage in processes, technologies, markets, and products. This will enable the business to get profit for all the innovations while decreasing the production cost and overall risks as well. 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 are important. It should be kept in mind that reacting continuously to the ever-changing market trend is dangerous and it is somewhat vital to follow a particular course until the change is significant. The key is to maintain strategic alignment and run tests on the innovations and analyze them so that the risks due to short-term thinking is minimized.
How to manage an innovation portfolio?
The management of innovation portfolio is not just about the visual representation of the 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 stabled planning and controlling of a portfolio of initiatives, designed to provide the highest overall value for the entire firm. It can be divided into a strategic and an operational part.
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 of which strategy needs to be aligned in a fluid way itself. This means that the strategies have to flexible in order to adapt continually changing conditions. Companies fail when they are not able to transit successfully and integrate the transits into the company. As said before, resources and capital should be allocated in such a way that it maximizes value while reducing risk. This is why it is necessary to establish a portfolio management system. Strategic innovation portfolio is operated by a project management office or corporate center which covers both short-term and long-term initiatives.
While innovations lead to short-term returns, it also plays a significant role in securing the long-term survival as well. But, there are instances where many firms become successful on their short-term profits but fail miserably on the long-term gains. Hence, sustainable innovation portfolio management must be aimed at finding and growing future businesses in parallel to successfully optimizing current ones. Companies should be careful as well as comfortable with experimenting with new products, business model as well as technologies. It has been identified that innovation portfolio management as one major area to control innovation risks sufficiently.
As mentioned above, Portfolio Management Board is in charge of the strategic decision making of innovation portfolio management. The main tasks of the Portfolio Management Board are outlined below.
Regular evaluation and prioritization of the innovation portfolio
Through financial, risk-related and strategic means, innovation portfolio is assessed from time to time. Based on this assessment, shuffling and prioritization, as well as reprioritization of projects, happen transparently and the projects which don’t meet the minimum requirements are scraped. The ability to survive in changing conditions is the major advantage of the portfolio approach. As criteria for prioritization as well as evaluation of specific projects could change over time, recurrent reviews let adjusting the firm’s directions of impact.
Evolutionary selection is the one central principle followed by the management of innovation portfolio. It means the decision to scale up the initiative is only made after receiving the data from the 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 shown by the prioritization of the portfolio. Prioritization of portfolio, as well as management of resources, is always aligned. Strategic resource management is all about the inclusion of resource availability constraints into the analysis of alternative portfolio compositions. If the above-said portfolio requires more resources than the number allocated, it will delay the project to any limits 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 influences the portfolio management, interdependencies and stakeholders features a high complexity. To maximize the profits, the above conditions should be appropriately met.
Operational Portfolio Management
Operational Portfolio Management does the implementation of 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. By converting the purpose into a plan, it helps to implement the current portfolio and to 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 circle. Several iterations are passed till an integrated portfolio plan is reached. Just like strategic portfolio management, project management boards are used here also for operational product management. Executive portfolio management can also be used to raise danger warnings if there are major project plan variances, strategic misalignment or resource clashes.
The innovation plans are in sync with the resources available during tactical resource management. This ensures that individual skills are balanced across project requirements. Project and Portfolio Management (PPM) system, which is 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 do the project in the operational portfolio management approach.
There is a wide between a strategy and what happens. The integration of Strategic portfolio management and Operational portfolio management decreases the gap and ensures optimum resource allocation, alignment and finally the successful implementation of great ideas. Innovation Portfolio Management at the Strategic and Operational level 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 innovation portfolio has become a web of tools designed to help businesspeople and entrepreneurs alike to bring out the best of their projects.
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