Innovate smartly: Portfolio power

As the name already reveals, what is done in portfolio management is the management of the portfolio. There are many different kinds of portfolios, for example a portfolio of products. However, in this whitepaper the focus will be on the portfolio of innovations within an organization and the best practices of how to manage this portfolio within a continuous innovation process. Questions that are answered are:

• Which challenge can you solve by applying portfolio management?
• Who is involved in portfolio management?
• What is being done in portfolio management?
• Which tools are being used?
• What is the meeting sequence?

Portfolio management is a practice that helps organizations to invest budget and effort in the right innovations that are connected to its strategy. It prevents continuation of developing innovations that are not as fruitful as expected or that are not in line with the direction the organization wants to follow. Often, people come up with new ideas and just start working on them. Sometimes these can be the most excellent and value adding ideas, other times this is not so much the case. Portfolio management helps to focus on the innovations that have the highest value-adding potential.

One other benefit of portfolio management is that it provides a prioritized overview of all the innovations that are going on in an organization. This does not only include all ‘decent but rough ideas’ but also innovations that are already more advanced and being integrated into regular product management. Hence it creates a transparent overview of the total investment in time and money in innovation, allowing for targeted decision making.

In each stage in which an innovation resides (ideation, validation, experimentation, scaling up, embedding), there is a group of people that meet in order to decide in which order these innovations will progress. In the Continuous Innovation (COIN) framework[1], this group of people are the Continuous Innovation Board (CIB) and the Innovation Coaches (IC). One of the key characteristics of this practice is that the CIB is a group of people (often senior management) that come from various departments or areas within an organization. The importance of discussing the innovations with a multidisciplinary group is to increase both the qualitative and the quantitative aspects of an innovation. When people of multiple disciplines are involved, various perspectives are given and therefor multiple challenges will be discussed, which will increase the quality of validation. The quantitative aspect can be explained in terms of adaptation rate of the innovations. When multiple disciplines are involved in the innovation process, there will be a higher likelihood that the innovation can be applied or implemented at multiple disciplines. This way, the value of the innovation will be optimized.

The main exercise in portfolio management is prioritizing (both starting and ongoing) innovations. This means that the members who are involved in this process analyze and discuss all the innovations there are in a certain stage and organize these in order of priority. The prioritization method used is Weighted Fastest Innovation First (WFIF), which is based on the Weighted Shortest Job First (WSJF) known from agile practices. In both methods, the idea is to prioritize the work that delivers the highest value in the shortest amount of time. The formula to calculate the WFIF is as followed:

For innovation, it can be difficult to predict the values of these variables. It is uncertain how big the market for this innovation will be, or how much revenue will be generated from it exactly. This issue can be solved by using relative estimation. Applying relative estimation is all about comparing informed guesses about one innovation to that of another one. This is being done for each and every component of the formula, starting with the potential value in 5 years for example. This means that it’s not clear yet what the exact numbers are but it’s about judging whether one innovation has more potential to generate value than another. Once decided which innovation has more potential, you assign a number of the Fibonacci range (1, 2, 3, 5, 8, 13, 21, 34, 60, 100). It’s highly recommended to start with assigning a relatively low number, say 3 or 5 as experience has shown it works better to avoid the usage of the higher numbers (such as 60 or 100).

Prioritizing and accelerating the right innovations requires having one single overview of all the innovations that are ongoing. A tool that is often used in Portfolio Management is a Kanban board. Most of the time, this is a physical board that provides a visual overview of all the innovations that are initiated in the organization. A digital version of the Kanban board is also an option, although we’ve seen that the physical board works better. Still, when the CIB members and Innovation Coaches are not working in the same office, the virtual Kanban boards are an excellent solution. The Portfolio Kanban often exists out of five stages: ideation, validation, experimentation, scaling up and embedding. In the ideation and validation stages, the initiatives are still ideas, whereas they are called innovations as they enter the experimentation phase. Within the COIN framework, the experimentation phase has a cadence of three times six weeks, where each six weeks are called a SWICH (Six Week Innovation Challenge). The experimentation stage[2] itself can therefore have four subphases. The first one is the backlog of the experimentation phase and the other three are one stage for each of the SWICHes that there are. Having the Kanban enables to track the initiatives through the phases and generate data and statistics on measuring the flow, effort and budget spend per innovation for example.

What we have seen so far is that for the Continuous Innovation Board and the Innovation Coaches it works best to meet on a cadence - once every two or three weeks. Within this syncing meeting, the aim is to prioritize the initiatives, share lessons learned and let feedback flow openly throughout the company. A meeting is typically divided into two parts. It works well to spend one part of the meeting on sharing the lessons learned and the other part on discussing the improvements made to the ongoing innovations that are visible on the Kanban board.

Proper portfolio management has great power to increase the value delivery of investing time and money on innovation. It is a process that requires learning and improvements. We have seen that in any case the key elements are to meet on a regular basis, to have the right tools, to stay transparent and to communicate what is going on in the organization. Having this these elements in the right way will enable to really focus on the innovations that are in line with the strategy and add the most value to the organization.