We know Innovation is the key to staying competitive and relevant. However, managing innovation can be a complex and challenging endeavor. This is where the concept of an “innovation portfolio” comes into play.
In this article, we will delve into the intricacies of innovation portfolios, from what they are to how to effectively manage them. We will also touch on the 70-20-10 rule for innovation and how it can be adapted to suit different business strategies.
What is an Innovation Portfolio?
An innovation portfolio is a strategic collection of an organization’s current and future initiatives related to products, services, and processes aimed at fostering innovation. Much like a financial portfolio, which diversifies investments to manage risk and optimize returns, an innovation portfolio diversifies innovation efforts to achieve a balance between risk and reward.
Unlike a traditional portfolio, which may consist of stocks, bonds, or real estate, an innovation portfolio encompasses a range of projects, ideas, and initiatives. These can include incremental improvements to existing products or services, the exploration of adjacent markets or technologies, and more audacious endeavors aimed at disruptive innovation.
How to Create Your Own Innovation Portfolio
Creating an innovation portfolio involves a structured approach to managing innovation projects. Below, we have added in the key steps to help you design your own innovation portfolio. This is not one size fits all, so if you have any custom innovation concerns, questions about innovation or queries, feel free to reach out to our team for 1-to-1 innovation advice.
Step 1 of Creating Your Innovation Portfolio – Decide What You Want to Track
The first step is to determine what you want to include in your innovation portfolio. In most cases, it makes sense to focus on specific innovation projects or initiatives. These projects should have a clearly defined idea, an assigned team, and a well-defined objective. By concentrating on projects, you can better assess their progress and make informed decisions about their continuation.
Step 2 of Creating Your Innovation Portfolio – Decide on the Key Measurements
Next, you need to establish the main dimensions that will define your portfolio. These dimensions serve as the axes on your portfolio diagram and frame how you view your innovation efforts. When choosing dimensions, consider the questions you want to answer about your portfolio and the kind of information that will be most useful for your decision-making.
For instance, if you are tracking innovation projects, two common dimensions are project lifecycle and the type of innovation. The project lifecycle can be divided into stages like exploration, validation, growth, maturity, and decline. The type of innovation can be categorized as core, adjacent, or transformational.
Step 3 of Creating Your Innovation Portfolio – Add Vital Details
To make your portfolio truly informative, add relevant details to each project or initiative. One crucial piece of information is the revenue potential of each project, which can be represented by the size of a dot. A larger dot indicates greater revenue potential.
Additionally, you can incorporate a risk-adjusted perspective by including a dashed circle inside the dot. The proximity of the dashed circle to the dot’s edge indicates the level of uncertainty or risk associated with the project. This visual representation helps you quickly identify projects with higher uncertainty, prompting further evaluation.
Furthermore, you can use color coding to denote which business unit is responsible for each project, providing a quick overview of project ownership.
The 70-20-10 Rule for Innovation
A well-known concept in innovation management is the 70-20-10 rule. Initially introduced by Google, this rule divides innovation efforts into three categories, Core, Adjacent and Disruptive Innovation. Eric Schmidt CEO of Google from 2001 to 2011 and the company’s executive chairman from 2011 to 2015, places this is as the best strategy to encourage innovation in business.
- Core Innovation (70%): This category focuses on making small, incremental improvements to existing products, services, or processes. It involves continuous improvement and optimization of what a company already does well.
- Adjacent Innovation (20%): This tier explores new markets, product categories, or technologies that are closely related to the company’s core business. It involves more significant investments and aims to expand the core business into adjacent areas.
- Disruptive Innovation (10%): The remaining 10% of innovation resources are allocated to disruptive projects. These are high-risk, high-reward initiatives that have the potential to revolutionize industries or create entirely new markets.
The 70-20-10 rule encourages companies to strike a balance between incremental improvements, expansion into related areas, and the pursuit of groundbreaking innovations. However, it’s important to note that while this rule provides a valuable framework, it should be adjusted to align with a company’s specific strategy and risk tolerance.
The Best Way to Manage an Innovation Portfolio
Effectively managing an innovation portfolio involves continuous monitoring, assessment, and adaptation. We should know! We have innovation experts here helping business, companies and corporations achieve their innovation goals! Below, we have highlighted some key principles for successful innovation portfolio management.
- Regular Review: Regularly review your innovation portfolio to assess the progress of each project. Determine whether they align with your strategic goals and whether adjustments are needed.
- Resource Allocation: Allocate resources based on the potential and risk associated with each project. High-risk, high-reward projects may require more attention and resources, while lower-risk projects can proceed with fewer resources.
- Risk Management: Monitor and manage the risks associated with innovation projects. Be prepared to pivot or terminate projects that do not show promise or align with changing market conditions.
- Alignment with Strategy: Ensure that your innovation portfolio aligns with your overall business strategy. Projects should contribute to your long-term goals and objectives.
- Communication: Foster open communication within your organization to keep all stakeholders informed about the progress and status of innovation projects.
- Flexibility: Be flexible and adaptable in managing your innovation portfolio. Markets and technologies evolve, and your portfolio should reflect these changes.
Our Final thoughts on Innovation Portfolios
An innovation portfolio is a strategic tool that helps organizations manage their innovation efforts effectively. By diversifying innovation initiatives and applying principles like the 70-20-10 rule, companies can achieve a balanced approach to innovation that ensures both short-term competitiveness and long-term sustainability. Regular assessment and alignment with strategic goals are key to successful innovation portfolio management in today’s dynamic business environment.