Solving the Puzzle: Portfolio Management and its Role in Innovation

It’s a constant struggle for most organizations: You have plenty of project ideas but not enough people, money, and other resources to accomplish these projects. Because most managers have a harder time saying no to projects, they often give the green light to more projects than the company can handle. 

Unfortunately, such actions only come back to haunt the company with budget overruns, higher costs to make things right, and more time wasted to rectify the failed projects. 

When all this happens, it becomes harder for organizations to focus on innovation. Yet, in today’s business environment, innovation is a necessity and creates a ‘shape-up or shape-out’ environment. 

Why Do Many Companies Miss Out on Innovation?

From our experience working with companies, the following three reasons are the most significant hindrances to innovation. 

1. Most companies have too many projects under-way

It’s a common scenario for a company to have multiple ongoing projects designed to fill internal needs, customer requests, or executive projects.  Unfortunately, with too many projects and a non-existent portfolio management system, these projects weigh down company resources leaving no room for other innovative projects. 

2. Missing balance for short-term vs. long-term projects and lack of diversity in categories

Many companies tend to lean toward short-term projects because they can get faster returns in a short period. Usually, these projects come from customer requests or operational needs that call for incremental innovation projects. However, if your company only focuses on short-term projects, you miss new growth opportunities to innovate and capitalize on trends, technology development, and leveraging your brand. 

In addition, focusing solely on a single category of projects is dangerous. What if that vertical failed due to changes in industry trends and changing consumer behavior? It would mean significant losses for your business. 

Companies that are well-set up for innovation will usually have a mix of projects spanning different departments, products, and technologies. In simple terms, diversity in your projects is a full-proof mechanism for protecting your company from sure disruptions in the industry. 

3. Failing to select the right projects that would maximize value

Without a proper framework of project selections, many companies are susceptible to choosing the wrong projects. The project could look good on paper, but you will have failed if you have not undertaken a thorough analysis of creating hypotheses, testing/experimenting and, most importantly, alignment with company core strategy. 

How Do You Set Up Your Projects be More Innovative?

We often describe innovation as creating new ideas that will have value and acceptance in mass market.

This is where a portfolio management system comes into play. 

At its core, portfolio management ensures that every project you undertake is the right thing at the right time. Portfolio management achieves this in two ways:

  • Painting a clear picture of organizational resources
    Portfolio management maps out all your organization’s resources, groups them into categories, and details how each resource is used and in which projects. This, in turn, helps you clarify what areas or projects need additional resources and which resources you can optimize to allow more innovation.¬†
  • Selecting Projects with Maximum Value to Your Organization
    One of the core areas of portfolio management is project selection. The project selection process involves identifying the benefits of each project, expected risks, payback period, overall ROI, and alignment to company strategy. When you have a project selection process, you’re guaranteed to choose the best possible project for your company, all factors considered. The selection process is also one way to balance short-term and long-term projects.¬†Research shows that companies that seek opportunities adjacent to present offerings develop favorable growth engines.

Overall, a portfolio management system helps your company prepare for innovation by ensuring:

  • Your company has the resources and is committed to pursue an innovation project
  • Your selected project aligns with the company’s strategic core objectives
  • You are taking advantage of the industry trends, technological advancement, and changing consumer behavior to adapt 

Once you have your portfolio management system in place, ask yourself these three critical questions:

Who are we today?

This question seeks to discover your current positioning as a company, both in strategy and in the market. You can discover who you are today by reflecting in your mission, vision, and values.   Furthermore, conduct a deep dive into your core business and understand fully your resources and assets.

Who are we going to become tomorrow?

The next critical question tries to understand the direction you want to take. Are you contributing to society and/or your employees, and how big of an impact does your company want to make?  Once you have clarity on where you stand now, knowing where you want to go is easier.

How do we start the change?

This question is often the most challenging because it requires concrete, measurable, and logical answers. However, finding an answer on how you’re supposed to progress is not impossible.

You start with organizational assessment to understand your strongest capabilities, areas of improvement and benchmark your company against industry peers.  I also highly recommend conducting a PESTLED analysis to better understand market trends.  You cannot expect to launch a new project successfully without knowing the answers.

Ideally, you will have data and insights of making your organization ready for innovation. 

Before diving into these solutions, note one thing: the biggest risk is taking no action!

Innovation in Action: 3 Companies Doing it Right

Below are three companies with the right balance of short-term and long-term projects, as well as diverse categories. 

1. Honda Motors

When we think of innovation and adaptation, Honda Motors is one company that comes to mind. Initially, Honda produced combustion engines. In 1949, they produced their first motorbike for the Japanese market. By 1963, the company had added automobiles to its product categories. Later in 2006, Honda branched into manufacturing aircraft. The project resulted from a secret R&D research project by Honda Motors. 

Now, HondaJet, a product of Honda Motor’s wholly owned subsidiary, Honda Aircraft Company, is one of the top-selling twin-engine business jets. Furthermore, Honda received the AIAA Foundation Award in 2018 for its innovative contributions to the business aviation industry.

2. FujiFilm 

In the 80s, FujiFilm noticed the threat of digitalization and decided to adapt. They released their first digital camera in 1988 to pivot with the change instead of fighting it. This move significantly helped the company remain in business as a digital wave took over the industry. However, Fuji Film was not yet out of the woods, and the next few years were tumultuously coupled with layoffs and budget cuts. 

However, FujiFilm found its footing through innovation by using its chemical compound developments (spanning years) and channeling them into other industry verticals such as cosmetics, pharmaceuticals, and healthcare. 

Now, more than $3.4 Billion of Fuji’s income comes from cosmetics and healthcare products. 

3. 3M Co.

3M has consistently shown a spirit of innovation, and it has clearly worked out. 3M has products sold in almost 200 countries and $30 billion in sales. The company’s success can be attributed to its business model of inventing market-disrupting products by investing 6% of its annual revenue in R&D. 

The company makes innovative and unlikely connections to develop new products. For instance, 3M has applied dental technology to car parts in the past. They invest in diverse projects to ensure a portfolio with a healthy mix of risks and long-term returns.

The Bottom Line? 

Portfolio management is a critical part of every organization seeking to be innovative. With innovation portfolio management, your organization can choose projects with the maximum value, ensure data integrity, and weed out bad projects early. 

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