Amazing tools to manage innovation portfolio
Part 1 of 2
Large companies are not startups and shouldn’t try to be such. Large companies should view themselves as portfolios or ecosystems of products and services suits their company strategy and market needs. The company should build its innovation portfolio and use a proven set of tools to assess which of its ideas have a validated business model and market need.
You, as an innovation manager and member of the company management team, should be able to see the big picture, meaning you’ll see the company current portfolio and the innovation portfolio. Understanding the big picture will allow the company to keep its core business rolling while keeping an eye and being prepared when new market needs emerge.
Different frameworks can help you manage the innovation portfolio. This part of the article (part 1 of 2) focuses on building Maps. I’ll suggest other methods in the second part of this article.
Innovation portfolio consists of a variety of ideas and projects in different stages of development, from concept or idea to ongoing project under development.
Innovation portfolio dimensions
Each project should be considered and placed on 3 dimensions – Time Horizon, Investment Requirements, and Risk / Reward ratio.
- Time Horizon – What is the window of opportunity? Is it a short or long term project?
- Investment Requirements – What are the actual resources I have to provide in terms of organization level, time, people, financial capital.
- Risk / Reward Ration – What is the probability that you are going to succeed? Is there a high cost of failure? What are those costs?
You should have an open discussion about these dimensions in your organizations, but you should do it in a controlled and orderly way. You should use a process and like mentioned earlier; we’ll use Portfolio Maps to do so.
Using Portfolio Maps
A Portfolio Map is a visual tool used to analyze relationships across innovation projects. Use the different maps to analyze and look at the relationships between the different innovative ideas and projects.
Portfolio map 1 - Returns Profile
In this map, we’ll use the horizontal axis to represent the Time and the vertical axis to represent the Return.
Time – is it short term or is it a long term project?
Return – are we expecting a high or low return from this project?
Portfolio Map 1 helps to compare the idea potential return or overall value to the time it takes to realize it’s value. Like all the maps I’ll describe in this article, this is an ongoing process you should update on an ongoing basis and not just as a one-time task.
Take all your projects and lay them out on the map. The location should indicate if these are short or long term projects and on the other axis, ask yourself if this project has high or low value. In case your map shows a situation where there are no short term projects with a high value, it might be an easy case when you just misplaced some projects, or you should have a conversation with your team to understand what you can do to shift some of the projects to the top-right quadrant. On the other hand, if all of your projects are in the top-right quadrant, you should question yourself and your team and ask why are we stuck in this quadrant? Why do we have so many radical, long term, strategic with high return projects? Think if you can turn some of them to be short term projects. Sit with your team, review the map and have an open discussion on each idea.
Portfolio Map 2 - risk portfolio map
In this map, we’ll use the horizontal axis to represent the Risk and the vertical axis to represent the Invest Level.
Risk – the amount of resources we’re going to put at risk to recapture or to realize the value of an idea or a concept.
Invest Level – how risky is the project? If this project doesn’t succeed, how much have we risked in that process?
Portfolio map 2 evaluates the risk involved with the level of investment that required for each idea.
Position your 3-4 most important current ideas and projects on the map. Think if you’re interested in the low-hanging fruits (bottom-left) or not, or perhaps you’re a gambler looking for a massive payout?
Aim for a portfolio that balances returns, risks, your short-term and long-term hopes and your resources constraints both within and across your innovation initiatives.
Here, your goal is to understand the amount of resources required and the amount of resources you put at risk in order to realize the value of the idea. Try to estimate how risky is the project in case it won’t succeed.
Similar to map 1, discuss this with your team and keep this updated regularly. During your discussion, some might put different ideas on different points on the chart. Each one sees the risks differently, and the goal of the discussion is to make decisions everyone agrees on. The risk and Invest Level are relative. If you decide that 2 ideas are risky, consider which one is riskier and position them accordingly.
Using a Portfolio Map
I’ve been using mind maps on different use cases. To make things a bit more clear, let me share one example. I was working with a non-profit organization, helping teens who dropped out of school and assists them to get into the work cycle. This organization does that by managing an advertising agency led by these teens. They were looking for ways to acquire new customers. Sounds like a basic thing but remember that they are not professionals, they are teens managed and trained by volunteers. First, we did a workshop to help them raise ideas and hypotheses that could help meet their goal. Thoughts on where to publish themselves, whom to cooperate with and so on. After refining their ideas, we came up with a portfolio of ideas for projects they can execute. In order to decide where to invest the effort and limited resources, we used the portfolio mapping tool.
Immediately, they were able to see the value versus effort and risk. They were able to see that some things require more resources than they had. Reviewing the maps helped them make logical decisions.
They had some projects in the lower left quadrant (low-hanging fruits), meaning it’s a low investment, low risk but low return. Although these are low return, they were able to get started and start asking questions that will inform them on the more significant project, bigger returns as well. Eventually, your goal is to have projects located in the strategic quadrant, but sometimes, you can start with low risk-low investment to get quick wins.
Portfolio map is a visual tool you can use to analyze relationships across innovation projects and quickly see where you need to put your focus. We use it on a regular basis and during workshops when we need to decide on the company next focus points.
Never use this tool alone, always consult your team and other relevant people from your organization, always conduct an active discussion, honestly argue on each concept, on each risk, fight to understand what’s the return for each project, what’s the investment level required, how long will it take.
Portfolio Heat Map
After you have your maps set, in order to have a clear vision for you and your team, we recommend laying out the different ideas and projects on portfolio hit map table. The table includes the following columns:
- * Project Name
- * Required Investment – in terms of cost and other resources like teams or individuals
- * Risk / Reward – High/Mid/Low
- * Time Horizon – immediate, in X months, in X years
As always, share this with your colleagues and if you have disagreements, discuss them. Part of the discussion can be on how to reduce risks, how to minimize required investment or the time needed for implementation. For example, you can invest more money in a project to do more preliminary research and by that reducing the risk. You can find a partner for a specific idea in order to reduce time to market or risks.
Remember that innovation doesn’t have to be high risk-high investment projects. Low risk-low investment projects can have a huge, and sometimes immediate payoff and value.
Soon I’ll publish the 2nd part of this article, suggesting other frameworks to manage your innovation portfolio. Don’t forget to register to our mailing list to get updates.