Corporate innovation is a numbers game, hence how you structure your portfolio has direct implications on the outcomes that will be achieved. In this webinar I addressed:
- what is the purpose of the innovation portfolio,
- the difference between innovation portfolio, pipeline, and funnel,
- relationship between innovation strategy and portfolio,
- vital essentials for designing a powerful innovation portfolio, and
- key ingredients for creating a powerful strategic thrust.
By the end of the webinar you will have a pragmatic framework you can immediately use to design your own innovation portfolio.
After you finish watching, feel free reach out with any questions you might have.
You can find recording, timestamps, transcript, and license information below.
|02:20||Innovation practice and innovation strategy|
|05:20||Innovation pipeline, funnel, and portfolio|
|11:05||Sequential and parallel flow of innovation|
|18:19||Innovation portfolio thinking|
|23:30||Innovation portfolio design|
|24:10||Innovation portfolio dimensions|
|32:20||What goes into your innovation portfolio|
|42:20||Showing your innovation portfolio|
|54:55||Strategic thrust of powerful innovation portfolio|
Hello. Welcome to “How to Design a Powerful Innovation Portfolio” webinar. My name is Bruno Pesec, and I help business leaders innovate profitably. I have over a decade of experience failing and succeeding with innovation in different industries and sectors, like defense, financial services, education, and several others. I have worked with large enterprises comprising of several businesses and several dozens of thousands of employees to smaller enterprises with several hundred, to hundreds and hundreds of startups. And I got to notice some things that are common with all of them, and some things that, well, are unique to each and every one of those.
Before we jump into the topic of the day, I just want to go through some technicalities. Think of this not as much as webinar, kind of online seminar or something similar, but rather as a private, personal workshop. To get the most out of this session, if you follow along with pen and paper and do the exercises that we’ll be going through. Make sure that you grab whatever you have nearby so you can scribble there. If you don’t have anything, just use something on the smartphone, or immediately after the session, get a pen and paper and do the exercises.
On the bottom of the screen, you should have a Chat and a Q&A button, so feel free to use that, just drop in your messages, drop in your questions. Don’t worry if they are unpolished or rough, or if you think maybe it’s silly to ask that. Don’t stress about that. Just drop in the question. I did receive some questions in advance, and as I promised, I will cover them before I take other questions. We will finish roughly sixty minutes from now, so don’t worry about that. We will not go over time.
Before we jump straight into designing a portfolio, I have prepared a very simple agenda. You can see it to my left. It’s very simple, just like I love it. We’re going to discuss some differences between pipelines, funnels, and portfolios. Then we’re going to look at the element of designing a portfolio. It’s just basically three steps: pick your dimensions, make sure that you select the visualization and table, and look what goes into it. Very simple, as always. And the final one is, what is actually a powerful portfolio? Some very important ingredients to put in, to actually achieve the results that you want.
Now, a little bit of grounding. Some of you have joined for a previous webinar I did, which was on innovation strategy. Here, again, we have two words. We have innovation and we have strategy, because that is connected to portfolio thinking and the portfolio as execution. What I said is, when we talk about innovation, what’s most important is that everybody in your organization agrees how you define innovation. You know, it doesn’t matter how some professors define it or how other practitioners define it, but what matters more is internal alignment of what innovation means in your organization. So, when R&D talks about innovation, they’re talking about the same thing as marketing, sales, or manufacturing, or procurement, or any other department.
The broadest definition that’s still moderately useful is that innovation is something new that creates value. When we’re talking about this value that’s in the middle, here value needs to be two-fold. It needs to be for the end-customer, end-consumer. You’re creating some difference for them, but you also must be able to capture some of that value back. The value here is not unilateral, uni-directional. It’s actually bi-directional, and it needs to be on both sides. For you, as the provider of this innovation, and for the recipient. And here you, again, you have the freedom to define it relative to your organization. It doesn’t have to be new to the world. That’s a very high bar to set. Again, it doesn’t really matter that it’s new to the world. What matters is that it’s new to your organization and to your market. Then, that’s something that’s really new, and it’s still very very challenging.
Another one that we discussed was innovation strategy. What is innovation strategy? In general, there are many definitions of strategy just like innovation. Most of them agree that it is a set of policies, a set of activities, that are designed to overcome specific challenges and issues, and what I really like from Rumult, Good Strategy, Bad Strategy, he talks about strategic kernel, that’s strategic analysis, a set of activities, and the focus on specific outcomes and specific actions to overcome those issues that were mentioned before. When you take the thinking to innovation strategy, what we concluded is that innovation strategy should be very simple. It should have important strategic objectives and should have a clear “what’s in and what’s out.” That way, you can actually use innovation strategy as a filter for moving forward.
This was a little bit of introduction just to have the grounding around “what is innovation” and “what is innovation strategy?” This is how I talk about it. As I said, you can use this as inspiration. Build upon it, tweak it however you want so it makes sense for your organization and what you want to achieve. Now that we have the grounding, we can actually start digging into the magical world of innovation portfolios.
Before we jump in, I just want to start with small warmup poll. I’m curious to hear. In your organization, do you have any of the following? Do you have pipeline, funnel, life cycle portfolio, nothing, anything? Just click for those that apply to you. If nothing applies, write in the chat, and yes, you should see the poll right now in front of your screen. So please fill it out and let’s see what happens. This isn’t a difficult poll, so I will give it fifteen seconds more.
Just five seconds feels like an eternity, when you’re staring into that soulless, soulless camera!
Good. Thank you very much. We will close the poll, and now take a look at it a bit later. So, what you heard me on both LinkedIn, and you heard me on other places, etcetera, is mention pipelines, portfolios and funnels. I really like illustrating them like this.
What I’d be curious to hear from you, and this is our first exercise, is when you think about, when you hear “innovation pipeline,” “innovation funnel” and “innovation portfolio,” how would you describe them? What would you say differentiates them from each other? Is there any difference at all? I’m biasing here, a little bit. But is there any difference at all? Please, think about each of these and describe them in your own words. We have three minutes for that. Let’s go.
45 seconds to go…
Okay. Let me see some of your answers that some of you shared. Perfect. So, I’ll share first, and then I’ll take a look. Myron, thank you for sharing. You are already ahead of the curve because that is exactly what I want to share, exactly what I want to discuss next.
What you will immediately notice is that these two are one-dimensional, so both pipeline and funnel have only one dimension. A portfolio is two-dimensional, both by its design, but you can also add additional dimensions which we’ll come to a little bit later. When it comes to use, like their intended use, both pipeline and funnel are much more tactical. It’s kind of, when you’re going through the pipeline, when you’re going through the innovation funnel, what you’re curious about are very tactical things. How is this idea going? How is this thing doing? Where are they? What have they done? What will they do next? Etcetera. It’s very similar to kind of both in how they look, and how they are approached, in different organizations, to what you will see in agile movement where you will see the kanban boards and similar things, because it spills over, the way of thinking. Is that good or bad? It doesn’t really matter. There isn’t good or bad here.
A portfolio is much more strategic in its nature. Because, as will come later, especially when we think of it more in the terms of investment portfolios than IT portfolios or project portfolios or similar things. The intended use is quite different between the two. And I love what Myron wrote so I’ll just read it out. “Funnel. Innovation funnel generates a flow of potential ideas to be tested to proceed to create a portfolio.” And this is a beautiful segue to the next point I want to discuss. What Myron put forward is one way to think about the relationship between the pipeline or funnel and the portfolio.
The way I explain it. You have that which I call sequential, wherein thinking in the pipeline or funnel, the idea must go through them before it shows up in the portfolio. That’s sequentially connecting them. But there is also thinking parallelly. Remember I said, a portfolio has two dimensions. In practice you can say that one of these dimensions is the same dimension that you’re tracking in the pipeline or funnel. You can take that as one dimension. Then, you have them as a parallel. And I attempted to illustrate them. Over here, you can see, sequential relationship and parallel relationship.
Now, a little bit of the metaphors, pipeline versus funnel. So here is the thing. Nobody wants a leaky pipeline. I sure hope so! Nobody loves it, nobody likes it, nobody wants that. But when it comes to an idea, we absolutely do want a leaky pipeline. Not leaky in the sense that it spills ideas that you believe are good, but ideas and investing in ideas in corporate innovation is a numbers game, so we do want attrition over time. That attrition should be based on evidence hopefully, and what’s happening in the market versus what big honcho or head honcho doesn’t like or isn’t attracted to. That is why, the pipeline a lot of people are using, but think about the metaphors as well. Here what I really do prefer is the funnel, and the bottleneck and everything that comes through that metaphor, but the best is thinking funnel with innovation strategy as the filters in between, so kind of passing through the ideas that really matter and preventing those that are either not strategically aligned or haven’t fit specific criteria that we defined. They cause a little bit of digression. So, I will move back to this.
I was mentioning the relationships. Sequential and parallel relationship. Before digging deeper into this I would like to invite you to think about both of these, and I would like you to write benefits and disadvantages to both views to the relationship between funnel and pipeline and portfolio. Let’s go… One more minute, so think about disadvantages as well. Why wouldn’t you go with either of those?
Your boss is not looking over your shoulder. This is not homework. Myron, thank you again for sharing in the chat button. For others, don’t worry. Just write it down. No one is going to grade this. What’s important when you do this exercise? Thinking is important.
There are pros and cons for each one of those. This one leads to less clutter portfolio in the end, but what are the disadvantages? If this process becomes overly expensive or too big, what you’re running the danger of is being labeled as a cost center. And especially in difficult times, cost centers are first to be cut.
There is sometimes not enough output and especially if this process takes a long time, depending how you define the gates here. You know? If this process takes two to three years, then you’re looking at two to three years before something shows up in the portfolio. And if you’re talking about portfolio as understanding what are your investments, then you don’t have a good view of them.
In the parallel, the portfolio will be less cluttered, so you will definitely have more initiatives. You will definitely have more initiatives visualized in there, but you will have a better understanding of actually what are your investments in the coming future. Now here, I’m assuming what your portfolio is going to look like. Again, which of these thinking or connections is more suitable depends on how you later define the portfolio, but it’s important to think now about those.
Now, I want to stress, because this is really important – both of these are good ways to think. If you think in either of these two ways, you’re already ahead of the competition. But I want to warn you that these two views, sequential versus parallel, cannot exist at the same time. It’s very difficult to run your organization if you’re trying to implement both of these at the same time, because they’ll be clashing. It’s a very different view of seeing what the ideas will be worth and develop. How things are going to be followed up. How accountability is going to be built into the system. And that’s why I’m stressing so much and drawing your attention to it. So, repeating, again. Sequential. Parallel. Both good. Pick one. You can always change your mind, but the later you change your mind, the more work it will be for everything else. But it’s important to pick and continue with your decision.
Now, let’s go to the real deal. Designing actual portfolios.
The first thing is portfolio thinking. Portfolio thinking really comes, and I hinted though, already: think more like an investor, more like an investment fund than IT portfolio, project portfolio, or other things. Because, really, corporate innovation is a means of creating a new future that’s more desirable to you and protecting yourself against other futures that are undesirable to you. Therefore, you want to have the feeling of an investment. That’s what you want to have. You want to think more of an investment manager – I don’t want to say Mr. Bank-Man, that’s incorrect. They are very, very risk averse. Again, thinking more in numbers. Thinking more in investment. Then, from that, comes the real innovation. It’s a numbers game. There are different numbers in the papers, in academia, etcetera…what’s the right number? But the point is, high numbers.
You need several things. You don’t need the portfolio to have one initiative. Then, why are we talking about portfolios? You don’t even need the portfolio to have five initiatives. You need the portfolio if you have more than twenty, fifty, a hundred. That’s a good number. Maybe a scary number, but it’s a good number. Later, we will discuss what you decided to go risk in because that’s another thing. For example, if we’re talking about portfolio product features, that again will be really high numbers. If we’re talking about portfolio initiatives, that hit specified criteria, that might be a lower number. Everything is okay as long as it’s exactly what you have decided on before and are working on in your innovation strategy. So, think like a fund manager. Think in numbers.
Which one should I address first? Let me address, one minute, portfolio balance. A lot of people, when it comes to innovation, are basing the portfolio balance on one popular article that became so popular that more people have heard about that number than have actually read the article.
The number is 70/20/10. 70 into core innovation, 20 in adjacent, and 10 interest formation. The thing is, if people actually take their time and read that article, what researchers or authors say is that in different industries and in different contexts, you need different distributions of these three numbers. There is no golden cut, there is no golden ratio that every company must follow. A kind of “balanced” innovation portfolio is a myth. No one decides what should go, and what the portfolio should look like. except you. You decide how much and where you want to invest. You decide about the future of your organization. There is no magical number that I can come and tell you, “Hey, you must make thirty percent of your investments into radical or transformation innovation and that will ensure that you are protected from destruction!” That just doesn’t exist, at least not yet.
Just throw that out of the window. There’s this myth of balanced innovation portfolios. It’s not relevant. I said before, like bank-men, funding managers, etcetera. When they talk about a balanced portfolio, it’s more of investment types. Kind of having quite safe savings, bonds, etcetera, and then having riskier investments, like venture capital and similar things. We could draw some parallels but again, here, you’re the one who decides for balance. It should be congruent with your strategy. For example, I believe it was 3M, they had as a part of their strategy that thirty percent of their revenue every year should come from the inventions and innovations that were made in the last five years. So, they had that as a part of their strategy. And then, they could work backwards. If you want thirty percent of your revenue to come from new products or the products that were made in the last five years, how much work do we need to put in? That’s perfectly fine. Then you have strategic logic and strategic rationale of why would you design your portfolio as you’re designing it.
But taking some copy-paste numbers from somewhere is a bad practice. Start with your strategy and where you want to go. When I mentioned thinking more about investment funds, one really easy method is that your innovation portfolio should outperform a passive investor. The investor that doesn’t do anything, and just lets your company be? Your performance should be higher than that. For that, again, you need numbers. You cannot just bet on one initiative, and then it goes bust. And you underperform. Again, numbers game: think like an investment manager. Forget the portfolio balance from the papers, from the others. You decide the portfolio balance.
When it comes to designing a portfolio, and innovation portfolio more specifically, we just need to work through three things together.
One is, what do we pick on the dimensions of the portfolio?
The second one is, what do we decide that goes into that portfolio? What are we tracking?
And the third one is, what do we decide is visualized versus what is in the table or table depiction?
We’ll work together through each one of those. Don’t stress! It’s much easier than it sounds, although we can turn it into a science and a lot of research, but that comes a little bit later.
Let’s start with the first one. If you just imagine this is a portfolio, like I said, we start with dimensions. What goes in, and then the data that goes into the table. Now, when we’re talking about these two dimensions, we have two ways of thinking about these dimensions. We can have them quantitative, or we can have qualitative. For example, quantitative would be risk versus reward, so maybe on x you would have percentage of risk or uncertainty, and as reward you would have return on investment, return on equity. Or any other financial metric you’d pick. Both of these are quantitative.
A qualitative example would be, for example, on x we have “idea maturity.” We might follow product life cycle, or any other similar model, and on the vertical axis, we might have “idea type.” Again, you can follow from the target or core adjacent transformational, incremental breakthrough radical, however you want to define them. Those are qualitative. Now, what’s the difference? Why should you care?
For me, it goes back to the intent of the innovation portfolio. It might sound logical to go with purely quantitative, for example, quoting risk-reward, but for me that isn’t always the most useful when talking about corporate innovation. The reason is, first, it’s highly unpredictable. When you put quantitative, if you decide to go with quantitative, if you put risk here and return here, people will expect that it can just go one way. Whatever way, but always one way. The thing with innovation is, if you’re working on an idea that’s low maturity, it’ll be pretty volatile on the risk. One week, you might feel like, “Okay, this is a sure deal!” A few experiments later, you might be like, “Ew, what we thought isn’t that correct.” Risk might be jumping up and down, up and down, like this. Up and down, up and down. And that’s a bit problematic. Because when you look at the returns, we actually want to discount them for the current risk, not just look at the raw returns. That is good for additional analysis when we start going into the numbers between and behind the initiative or project or whatever, but when I’m looking at it and I just see a bunch of things that are positioned here, then when we have quantitative, the reason becomes, “Okay, let’s just cut here and say, this is dead zone, this is pure investment zone, this is something.”
But if we’re talking about innovation, and as I said, risk and uncertainty is quite volatile, something might be in the kill zone one week and a month later it might be in pure invest zone, and back in three months. You see? You’re running the risk of making decisions that potentially aren’t as useful. And another thing. If I’m looking at risk-reward portfolio, and I want to ask, “How valuable is my portfolio? What is actually going to come out of this?” I take a look at it. I get some number back. But what I don’t see in it is, “Okay, when?” Maybe an idea was started yesterday, but it’s high potential. It’s high risk and in risk-reward, if it’s not discounted, it’ll be pretty high. It’ll maybe be in the kill corner because it’s high risk as well. I’d be like, “Hmm, do I continue with that or not?” When is this coming to life? When is this coming to fruition? And especially, if we decide that everything goes in, from immature ideas to very mature ideas, because all of that is innovation investment. It becomes much more crowded, and much more difficult to make a decision.
That’s why my preference is qualitative in this case, for the innovation portfolio. Like having a maturity and having a type. Then, it’s possible to visualize, for example, risk-adjusted value of every initiative, but basically deciding, okay, the size of a bubble can be the size of the investment. Many different ways to do it. It is possible to put anything else. I just shared two examples. What’s important is that we shouldn’t, usually, mix one quantitative dimension and one qualitative, because it becomes very difficult to interpret it at a glance. Either go with two quantitative dimensions, or two qualitative dimensions, and it’s also possible to add additional dimensions, by that, it might be size, so that would be another qualitative dimension, so you can see in the example I used, I have two qualitative and one quantitative, and it’s also possible to use visual tricks to add quality to your dimensions. So, color. You can use color. You can use shape. You can use other tricks, without introducing, like a 3-D view, or very difficult view. It’s better to keep it special, like 3D, because it’s much easier to interpret.
I covered a few ideas for the dimensions. I would like you now to think about your own organization and what is most important to you and your innovation. What would you like to start to use as a grounding for your portfolio? What two dimensions? I had two examples. Risk-reward, maturity, and idea-type or innovation type. Both are perfectly fine. I said pros and cons for each, but it’s also possible to add some of your own. I would like you to think, okay? What would you like to pick as a starting point for your two dimensions? What are your x and y? Think a little bit, drop a question if you want to, and select two dimensions.
Don’t worry. Paper takes anything! It’s easy to erase things that maybe you change your mind.
Okay, in the last minute, I would like to look at your selection and for your x and for your y, explain. Why did you pick those two dimensions? What do you expect?
I should get a flip chart, so I don’t have to hold these papers!
In case you already haven’t, I will ask you to draw your x and y. Just draw them. Because what we’re going to discuss next is, how do you decide what goes in? What to think about? This may sound, again, obvious. Like, “What do you mean? Innovation goes in!” Yes, but what is innovation? Are you going to put product features, service requests, are you going to put improvement proposals? Are you going to put in projects, initiatives, ongoing business? What are you going to put in? How are you going to decide?
Again, there are several ways to think about it. I will share my preference, and I will also share different ways. What’s important is to start with, okay, again, innovation strategy. What do we want to achieve? How does innovation relate to our overall business? What is expected? How is innovation expected to contribute to overall business? Is it expected to contribute revenue? Is it expected to contribute to cost reduction? Is it expected to contribute new businesses? Is it expected to open new markets? Is this defined? What does “new” mean? Etcetera. All these expectations, you should use them. You shouldn’t think of blue sky, green fields, it’s you in the currents riding around, and butterflies flying, and you’re creating a unique wonderland. That’s a nice way to think, but it’s not realistic for big organizations. You are already within the context. Respect that context. Push the boundaries. But, if you think that you’re going to create your own boundaries somewhere outside, they’ll probably just lead to failure. Instead, what’s better is thinking, “What are our strategic constraints? What are we trying to achieve? And then select a few boundaries that you want to elbow and push.
Use that to inform your decision. What should go into our portfolio? There are different ways to define it. You could say, “Every investment above a certain number, we want to it in the innovation portfolio.” Every investment of specific risk, if there is a lot of uncertainty, there are a lot of unknowns, we want them, or we consider them to go into the innovation portfolio. You could say, for example, on the opposite spectrum, you could be very strict. Only innovation projects go in. Only innovative ideas go in. Only radical, transformational, adjacent. Only that goes in. We refuse to have a poor investment as part of an innovation portfolio. All of these are perfectly fine. You will hear me repeatedly saying that different positions, A and B, are perfectly fine as long as you choose them and stick to your choice and decision.
Because innovation is extremely ambiguous. What matters is removing that ambiguity so you can deal with the uncertainty. Ambiguity comes from language and how people construct meaning between each other. That is an easy fix. Just fix it. Just say, “Hey, from today, this is what it is. Perfect. High Five. This is what we do.” Deal with uncertainty, which you must experiment, research, work throughout, and sometimes it’s impossible to remove all uncertainty. Everybody heard, was it President of Nokia? “We did everything right and we still failed.” If maybe we discussed how much right or wrong was done, but it’s a common feeling. We did everything by the book, but it still failed, because sometimes playing by the book is not enough to reduce uncertainty. Sometimes you do everything you could have done, but it’s still a market flop. What matters is, uncertainty can be reduced to some extent. Focus on uncertainty, remove ambiguity. That was a little bit of depression, but I’m coming back.
What’s important is, what I would like to propose is, when you start thinking what goes in, you also need to think “What is the smallest workable unit?” What is the smallest unit that I can actually analyze as a portfolio manager, or someone who is within the portfolio? Because ideas, by themselves, you know they don’t get executed. Someone just proposed an idea and you put it in your portfolio and say, “Well, it requires some money.” It’s not really useful by itself.
How I usually propose is, although there is a lot of, what would you say, project management. Talk about projects is becoming less and less popular for certain reasons. But if we go back to what the project is, and that is temporary activity, so something with very specific outcome and very specific output, really when it comes to innovation, if you’re successful with your innovation initiatives and projects, then they either turn in permanent part of your business, or you divest them. You sell them to someone else. Or shelve them if they were not successful. But we’re talking about success. They are quite temporal in their nature, so why not embrace that?
When I’m talking “innovation project,” the bare minimum, so I’m not talking about different bodies of knowledge and all that, shelve that. Go back to the basics. The very basics are this. This is innovation project. There is an idea, with a group of people working on a specific objective. This objective might be anything as simple as kind of, “We want to validate if there is a demand for this idea.” Or, “We want to see if we can create a minimum viable product and see if there is any demand for it.” It can be objectives like that, or it can be more specific or more outcome-driven objectives like, “Okay, your objective is to achieve certain traction,” or “achieve certain percentage of the market within a certain time period.” Everything goes.
The point here is that, if you’re talking about innovation projects, then this is the bare minimum. Not just idea, but also team. Especially in the venture capital world, you will hear that execution matters a lot. This is how we ensure that you put execution as part of your equation. Because ideas, as I said, don’t get executed by themselves. Sometimes you need to assign a different team to work on that idea, sometimes you have a superstar team, but the idea is just crap. There are bad ideas. No matter what people say, there are bad ideas. You can improve the quality of an idea before working on it. Link startup isn’t the Holy Grail always. Link startup is great, but if you feed in a poor idea or ideas of poor quality, it’s still very difficult to take it. And objectives are important because ultimately you do want to achieve something. Depending on your portfolio, objectives are baked in, so they’re also supported. It’s much easier than to follow everything, and it’s much easier to talk about initiatives. “Oh, they need money to achieve that.”
They don’t need money to work on an idea. What does “working on an idea” mean? But they need investment to achieve objective, and this objective is connected to overall strategic objectives in a certain way. Do you see the linkages? Do you see the connections? Suddenly we have something to talk about that’s not driven by ego and that’s not driven by “I think” or “the big boss said,” but it’s more aligned with what the organization wants to do and where it wants to go.
I’ve been talking enough. Let’s move to the next exercise. I want you to think, and write down a description of what goes in your portfolio? What are the criteria? How would you decide? So, you have your own portfolio. How do you decide what goes in? Do you want to use the innovation project description I used? Do you want to use, about a certain investment? Certain risk? Something else? You’re completely free, but I want you to write a description of what goes into your portfolio. What kind of initiatives and teams will your portfolio visualize, show, track, measure, etcetera? Three minutes. Let’s go.
When you describe criteria, I would like to spend the next minute to describe a few projects that might go in. What do they look like? What words would you use to describe them? And when you do that, look at the criteria.
And what do you say? You’re already two thirds into making your own innovation portfolio. Obviously, you would want to do this exercise with your team, and with your peers, so it’s aligned for the whole organization, but again, I want to draw your attention, that this isn’t really rocket science. Now, we will continue to the last part, in the final part of your portfolio.
Right now, you usually have something like this. You have decided on your two dimensions. You have described what goes in, so I just illustrated it with the bubbles corresponding to quantitative dimension, here it’s risk-adjusted return on innovation. It can be anything, really, but you already have this. Now, what we need to do is look at the final part. And that is: what goes into the table? Here, what we see is, at a glance. Why do I make a difference? Because think of the visual side of the portfolio as a dashboard. I immediately see, and I can say, “Okay, this is the portfolio composition. This is where most of our risk is. This is what’s happening. These are the main initiatives. This is how we’re investing.” I can immediately, from the visual, see what kind of investor you are, as a company.
But that is not enough. So, when we see this A, B, C, D initiative, it’s human and expected, I want to know more about it. That shouldn’t be crammed into the visual side. That is what we have tables for. So, you have a visual dashboard, and then you have the tables.
This is more art than science, deciding on what you want to show there. Because you don’t want it to be overwhelming, but you still want it to be useful. Usually what’s important to differentiate is: Are we showing in the table estimated values versus actual values? When you decide that, usually the three groups that are perfectly fine to show, and I’m usually interested in them: value in terms of what are we actually expecting in terms of returns, financial benefits, some non-financial benefits, then cost. How costly will this be to roll it out, to maintain it, to operate it? Any other expenses? And then more around the type of innovation, because that is something that larger enterprises are mostly curious for.
When I work with larger clients, it’s these three that you start tracking. This is the potential of each idea. This is the expected cost of each idea. This is currently the risk level or uncertainty level. This is the type of innovation we are dealing with. Kind of all of these things. This is the team working on it. And then we can go into more of the metrics that I wouldn’t keep in the innovation portfolio, but rather in the final or pipeline view, when it becomes more around “What’s the experiment philosophy? How fast is this thing learning? How much time are they spending? How are they progressing over time?”
All of these things, I wouldn’t necessarily track in the portfolio. It doesn’t mean that you cannot do that, but the reason, as I explained, that is more on individual progress or team progress level, and I prefer that separated in the final pipeline view. Our portfolio’s more around financials, returns, what are we expecting in the future, how are things developing. Again, as I said, strategic level and technical level. And I realize this is not a very good way, because it implies that power relationship. Let’s just put it this way. Both strategy and tactics are important. They come hand in hand, but separating them is also good in terms of monitoring, because otherwise, you will end up with a dashboard that’s massive. The bigger it is, the more difficult it is to update it, to track it, and to make any meaningful decisions based on it. Ultimately, you want to use the portfolio to make better decisions, to understand what is happening.
This also leads us to our last exercise. And then I’ll tackle some of your questions, some of those that have come in, and we’ll be slowly wrapping up.
My final question for you is, thinking about this. What do you want to track in addition to the dimensions that you have put here? So, imagine that every vertical column is one initiative. What do you want to have here? Start with those that you have already written. Make it easy for you. You don’t need to reinvent the wheel. And then start listing what other things, what other attributes, do I want to measure for every initiative? Start. Go.
Okay, try to build in with more specifics. Not just cost. What type of cost? Not just value or returns. What kind of returns? What are we looking at? What are we actually measuring? Are the things that you are writing down qualitative or quantitative? Both are fine, but think. Which one is it?
Now, in three steps you have something. You went from nothing to actually selecting the dimensions that you want to track in your portfolio. Describing what you want to have in your portfolio. And finally, what additional attributes you want to measure every initiative on. Those three are the three that you need to start creating your innovation portfolio.
It’s not rocket science. There are a lot more details to it. There are a lot more particularities to it. But this is a perfectly fine starting point. Because that’s what you need. A starting point. From there, everything flows. Innovation portfolio is not needed if you don’t have innovation strategy. What’s the point then? Then, you just have something that’s shooting into the dark. Innovation portfolio is execution arm of the innovation strategy, because again, strategy is a piece of paper that defines your strategic objectives, what’s in, what’s out. But that, by itself, doesn’t do anything.
What is then necessary is the next step, setting up a bunch of select initiatives that you measure and track through your portfolio. They are tested in the real world. In the market. And that is how strategy gets executed. Sounds simple? It’s usually different to put in reality. Not because it’s rocket science, but because it requires discipline. It requires follow up. It requires discipline over a period of time. Not just over a period of one week, but decades. And that is something that’s, well frankly, challenging even for us as individuals, let alone large companies that comprise of several thousand individuals.
Now, before wrapping up, some of you have sent questions. Here they are. I’ll quickly address them, and any questions that you may have sent in, so now is a good time to write them down. I’ll read out loud, and then I’ll just quickly respond.
“How can we implement innovation portfolio in our organization?” I touched a little bit upon that. The best sequence, or the right sequence, would start from innovation strategy. Because then you actually, through the process, you already create alignment in the organization. You create alignment around: how is innovation supposed to contribute to overall strategic objectives? Through overall direction that the organization is going in. Which in turn, makes it much, much easier to design a portfolio and to start implementing different initiatives. Because if you ignore that and just try the portfolio, what you’re risking is that it’s kind of shooting in the dark. You’re risking also increasing organizational friction. So, it’s kind of, okay, what are these guys actually doing and why are they doing that? Why are things not in there? A lot of this conflict can start happening. The best sequences start from the innovation strategy, and then start implementing by introducing the innovation portfolio.
What I can’t see is the size of your organization and the scope, again, be aware of the size. In some cases, you really don’t need an innovation portfolio. Like an SME with a hundred employees and a single product in a single market. I don’t know; let’s say that you sell, well, cars are not a good example. Let’s say you sell tents to a single market and you don’t want to create any new tents. You probably don’t need an innovation portfolio. You might benefit from innovation pipeline or innovation funnel, and in there would put different features, different improvements, etcetera. That would be perfectly fine. But in reality, you could have that as part of your regular product development process and continuous improvement process. Because it will be mostly incremental product upgrades. Think about the size of your organization, and what are you doing, and when are you completing, and how, before jumping in headfirst into getting yourself a new and fancy innovation portfolio. The larger the organization is, the more they have to benefit from it. Because there’s more organizational complexity, and innovation is one of those processes that literally cuts across whole organizations, so they have the most to gain from organizing it, structuring it, more professionally.
“Updating portfolio takes a lot of time. We have multiple Excel spreadsheets, and it is difficult to track everything.” Yes. Yes, I concur. It can get really, really out of hand, especially if you are working with Excel ninjas, magicians, jockeys, however they want to call themselves. It goes back to the design stage. We said, start with x and y, then start with describing what goes in, and then list the attributes. When you list them, be critical. Go through them and make sure that each and every one of those attributes that you decided to follow and track in your portfolio actually helps you make a better decision. If it’s there just to look nice or just because, don’t have it.
Here, because Excel and spreadsheets are mentioned, is there is a difference between showing that needs to be shown and having numbers because you need them to calculate some things. That is more literally software implementation, so what’s possible here is to have two spreadsheets, so one is for all the calculations, and then the other one is just showing the numbers that it needs to show. Make sure that you do that. Don’t confuse using this table to actually make decisions versus using the table to make the calculations. Don’t overcomplicate it, and make sure, if that is the case, just have one spreadsheet that is doing all the calculation, and then another that’s pulling the numbers that you actually want to show.
How not to make it’s not a chore? Again, you’re making it much easier if you select less things to track, things that are only important to make a decision instead of everything. Portfolios shouldn’t be updated every day anyway. They probably shouldn’t be updated every week, anyway. You’re probably not doing experiments that fast. Your initiatives are not moving that fast. So, monthly update is perfectly fine. And it shouldn’t be two hours a month. It should be pretty simple. Flow system works the best, like as teams move, as ideas move, if they’re actually submitting the numbers and there is enough trust in the organization, that can work perfectly fine.
That’s it for the questions, and since we are running out of time, I will stop with the questions here.
Just to wrap up what’s really important, and I touched it in the end, is, this is really it. You formulate innovation strategy, and from that, you start formulating your portfolio. Because portfolio is execution of strategy. But it doesn’t stop here. If it was stopping here, you would be living in your own world. That is how organizations go down under. Because they think that they can foresee the future, foretell the future, and then based on that, they will make the perfect products that people will absolutely love, and it’s just like a perverse loop here. I wanted to say something inappropriate, but I stopped myself. So that is a very perverse move.
What’s really needed is, from here, we go to the world, to the market, and then take that learning back. Take it back to your portfolio. And then take it back to the innovation strategy. Innovation strategy is different from other strategies because it should be changed much more often. Corporate strategy shouldn’t be changing every week, every month. After all, strategy is a bunch of assumptions. It is a bunch of assumptions that’s based on analysis, critical thinking, etcetera. But it’s still a bunch of strategic assumptions.
Innovation strategy is no different. It’s even more uncertain. Even more assumptions about the future than the regular business and corporate strategy. What’s critical is to close these two loops. Portfolio is execution, but this execution faces the world. It learns from the world, and then informs back the strategy. And that is how you get a powerful innovation portfolio. That is how you ensure you have winning innovation strategy. Always learning faster than the competition. Always being one step ahead. Not because you are a magician. But because you understand that it’s your job to create value, but it’s marketing’s job to tell you what value is and isn’t.
That’s been it for today. We went through some steps. Please, go through them with your team as well. Use that as a starting point. Don’t be afraid. Paper takes anything and everything, so don’t be afraid to rip papers, throw them on the side, make a new one, rip it, throw it to the side, etcetera, as many times as are necessary to create something that’s useful for you and aligned with your strategy.
Now, before hanging up and saying my final “bye,” I want to announce the next webinar I’ll be doing, and that one will be, I daresay, on this topic, where I’ll be going into three critical gaps. If you understand them, and know how to analyze them, you can find infinite opportunities for growth. At any given moment, there are at least a hundred opportunities for improvement and growth. And these three gaps are capability, value, and conversion. So that will be the topic of my next webinar. Hope to see you there!
Have a spectacular day, and I wish you all the best in your innovation endeavors.
Copyright © 2020, Bruno Pešec. All rights reserved.