think ideas conceptual design. light, tools, men, computer, experiences, clock, dollar, book, rocketManaging a portfolio of innovative projects incurs many difficulties, such as the establishment of a culture of continuous evaluation in order to validate the hypothesis, or the difficult collaboration of multidisciplinary teams with no prior experience to rely on. For those who lead the innovation strategy, the biggest challenge is to have a tool that allows distinguishing the relative importance of each project in order to prioritize its implementation.

As the ratio between innovative ideas and projects reaching the final stage is very low, it is especially important to ensure that the highest value projects are approved. It is worth noting: innovation projects are very inefficient. It is necessary to spend time and money on research until you get an idea that is really worth pursuing. But that does not mean that you do not have to control how much time and money you spend, or what activities.

That is why this type of portfolio usually follows a lean philosophy: it starts from a hypothesis or idea that must pass through successive phases of refinement and validation.

Thus, before the existence of a project in the execution phase, there is the proto-project: first the idea or hypothesis, then the MVP, which requires pivot points. When the starting hypothesis is not endorsed by actual experience, or only partially, the proto-project can be reoriented in the light of what has been learned.

As pivoting generates additional costs in the search for commercial and technical viability, innovative proposals must be constantly evaluated to consider which ones should have room to generate inefficiencies and additional costs until a sound foundation is found - and which are discarded so that the investment is sustainable.

Innovation and corporate values

Innovation projects in large corporations are usually characterized by responding to a vision that goes beyond the business, also pointing to values ​​such as Corporate Social Responsibility, environmental sustainability or the consolidation of one's own innovative culture.

For example, BBVA has an ambitious innovation strategy centered on Big Data. As the ultimate goal is to better understand the behavior of customers to provide better services, efforts are directed towards knowledge creation. With important ramifications: the key professional is no longer the traditional financier, but the data scientist, who "dominates statistics, knows how to program and also understands the business". The various initiatives that emerge from BBVA's Big Data strategy struggle for finite (though abundant) resources, which is why Marco Bressan has decided to concentrate on the centralization of information to begin with.

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On the other hand, the means that any corporation has to materialize an innovation strategy is its portfolio of projects. In order for the portfolio of projects to have sufficient bearing, portfolio management must be the explicit responsibility of a corporate unit, often the management committee itself.

In the case of General Electric (GE), verticals include aviation and transportation, but they extend to materials as diverse as software, health services and water.

A sample of the diversity in GE's innovative portfolio, pictures

A sample of the diversity in GE's innovative portfolio

Unfortunately, as innovative projects are often completely unpublished and very different from each other, it is often difficult to know which projects are to be given preferential treatment. Is it more important that the project produces a social return or contributes to the modernization of the technological infrastructure?

Given the difficulty of comparing two innovative projects and knowing which will bring greater value to the company, it is crucial to have a criteria for making complex choices objectively.

Complex decisions are often subjective

A complex choice is one in which the alternatives are weighted based on more than one quality, so that there is no optimal alternative that surpasses the rest.

For example, several factors are taken into account when choosing an internet service provider: price, quality of customer service, the speed of the line and the reputation of the company. Usually the more economical services offer lower speeds, while more established brands often offer improved after-sales services. The decision is never obvious.

Complex choices are made daily. Often, as is the case with internet providers, the final decision is usually subjective, because whoever decides does not have the necessary time or tools to decide which option gives the maximum value. This hasty dimension of the decision allows competitors to appeal to the consumers' emotions and win with arguments less related to the service itself.

However, it is obvious that whoever leads the innovation program of a corporation can not be carried away with emotion. You will have to give reasons for your decisions, rely on data and get the push and commitment of many teams, who often work in remote locations.

Complex corporate decisions:

Portfolio prioritization with AHP

Without a technique or method to compare between the different value criteria, each choice between projects is difficult, equivalent to the choice between ethical values, such as freedom and equality.

Although there are dozens of prioritization methodologies for product requirements, there are not many alternatives in the world of project management.

The most convenient method for responding to complex choices representing the alternatives between innovative projects is AHP, an acronym for Analytical Hierarchy Process.

In short, AHP is advisable because:

  • It helps build consensus around how to implement the innovative portfolio strategy
  • It is linked by definition to the criteria, values and business objectives
  • Shorten the political discussions
  • Increase the commitment with the decisions taken, since all the criteria of the corporation are represented in the right measure.

This technique allows for comparing, in a table format, the relative importance of each criterion or objective.

Business goals prioritization for "Optimist - 110% sales" Scenario. Table

The resulting table does not hierarchize in absolute terms. That is to say: it does not classify the objectives from more to less important, since that is an oversimplification. On the contrary, it allows us to attend to fundamental nuances when it comes to assessing the diversity of value propositions delivered by innovative projects.

For example, in the case of an innovative portfolio one could compare the importance of the following objectives:

  • Improving innovative culture
  • Increase market share in digital services
  • Modernize the technological infrastructure

Let us now imagine that the management committee of a corporation devotes a meeting to compare these objectives and discuss which is more important for the strategy comparing them in pairs. The conclusion would be something like the following table:

Table, innovative culture, digital services, modernization

Although matrices can be done by hand or in Excel, it is convenient to have software that allows calculation and is integrated with the project management itself, such as ITM Platform.

Thus, not only is there a system that helps to perform the analysis, but its results are registered and connected with the evaluation of the projects themselves.

By linking each project to the objectives and criteria it supports, ITM Platform indicates which projects contribute the most value and should start sooner.

Of course, the work of evaluating the proposals will remain a difficult art, as well as the elaboration of innovative proposals, with all the market prospecting exercises, identification of tendencies and uncertainty for the future.

But there is a basis in the management of the information that must be demandable. The facilitated prioritization that we have explained in this article has the great advantage of generating consensus and supporting informed, renegotiable and easy to communicate decisions.

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unicorn on black backgroundToo much innovation can be bad

Innovation is dangerous. Despite the many benefits of marketing new products and services, it is important for any private organization not to underestimate the complications of practicing innovation on a day to day basis. In short, for a private organization with limited resources, too much innovation without sufficient control, can quickly lead to disaster.

Start managing your innovative projects in a unified portfolio with ITM Platform 

Innovative ideas are, by definition, very risky. When you launch an innovative project, the future, the success and acceptance in the market, and often the technical difficulties for its development are unknown.

Solution: portfolio management of innovative projects

Over time, some innovative projects will fail, while others will succeed, they will come to market and may even become established.

This means that, in order to achieve successful innovation, it is imperative to fail, close defective projects, expose oneself to risk and, ultimately, lose financial resources that will not produce results.

So that the risk of innovation does not overwhelm your organization, it is essential to treat innovative projects as a portfolio that is managed according to unified criteria. Therefore the team that manages the portfolio has the important task of monitoring the organization's innovative projects.

Responsibilities include the following:

  • Demand a clear business argument about the commercial feasibility of the development and its relationship with the needs of customers.
  • When there are no spontaneous candidates for innovation, it is essential to request new proposals in the strategic directions and areas that have been identified.
  • Establish evaluation criteria for proposals.
  • Evaluate the proposals, discarding those that are too risky or do not promise sufficient benefits.
  • Decide investment limits for innovative projects, as well as total risk capacity.
  • Compose a balanced portfolio.
  • Coordinate the management of projects that make up the portfolio, especially in the case of shared resources.

How to monitor a portfolio of innovative projects?

When composing the portfolio and with a view of monitoring innovation, it is important to:

  • Have an appropriate balance between different types of projects, such as small technical innovations that improve an existing product or totally new products and services; and types and levels of risk.
  • In addition, it is essential that innovative projects are not linked to each other and can fail or continue independently. Otherwise, if projects share risks and have dependencies, failure in a component could have an impact on the whole portfolio. The fundamental idea of ​​a balanced portfolio is diversification and experimentation: that each project has its own life.
  • Achieve a number of projects low enough to be feasible with available resources (which will often be shared) and high enough to allow the introduction of new products and an interesting flow of projects for the portfolio's half-yearly and annual evaluations.

Evaluation of innovative projects

As we indicated above, in order to evaluate innovative projects and decide whether to keep them in the organization’s portfolio, it is important to define a series of benchmarks. Although it will depend on the sector and the characteristics of each entity, some typical criteria are:

  • Estimated cost
  • Development time
  • Critical resource consumption
  • Alignment with the strategic factors of the organization
  • Innovative and differential character
  • Technical success probabilities
  • Commercial success probabilities
  • Ease of imitation by competitors

Once the criteria are selected, it is important that they be assigned a weighting that allows final estimates to be made. The relative weight of each factor is usually a measure of the organization's situation. For example, in consulting firms that rely on networks of collaborators, the consumption of critical resources will be of little importance, whereas the limitation of development time may have more weight than in other more stable organizations, where innovative projects can be developed with stability over the years.

The score is a good estimate of the value of the project. However, the viability of an innovative portfolio depends on special attention to the composition of its risks. Therefore, beyond that final score reached by the projects based on the selected criteria, it is recommended that the composition of the portfolio of innovative projects make use of an assessment matrix.

The assessment matrix of innovative projects

Many of our readers are already familiar with the ITM Platform risk assessment matrix. The evaluation of innovative projects allows a completely analogous technique to be used.

In the assessment matrix of innovative projects two variables appear:

  • Expected commercial return of the project
  • Risk level

returns/risk

Ideally, all projects will be placed in the upper left quadrant of the matrix, they may be scarce and there may be many projects in the balanced quadrants marked in blue (where returns are proportional to risks).

Bearing in mind that it is good practice to include projects of different types with different levels of risk and knowing that, no matter what we do, some of the innovations will not be successful, a good result is the allocation of the project budget with Percentages that follow a proportion like that of the illustration.

percentages in rectangles

From the location of innovative projects in the matrix and their combination with the punctuation according to the criteria listed above, it should be much easier to make the final decision about which proposals to accept and which to discard.

Innovation will remain risky; but well-organized monitoring will increase the organization's chances of success and learning, with the potential to turn unsuccessful projects into better, more ambitious proposals in line with the pulse of the market.

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