Innovation portfolio management (IPM) is in fact not a secluded phase, but it is rather an ongoing process that flows alongside the main innovation process. But its importance accentuates once the concept has been developed, a business case has been defined, and the major investment round is about to begin. At this point each innovation concept needs to be evaluated against the strategic objectives in comparison with other investments.
The purpose of IPM is to evaluate initiatives…
This mid-evaluation is the gateway out of the Valley of Death for the innovation initiative and will enforce a neutral and impartial valuation and plan for its inception, launch and conclusion. Since not every initiative should be funded and developed there needs to be a set of manifested selection criteria that match the intentions of the innovation strategy and that illuminates initiatives that do not fit into the portfolio.
…to create strategic balance…
The valuation of individual initiatives and concepts are then compared with the rest of the portfolio to create a strategically weighted balance between risk, opportunity and investments. This process goes on as long as initiatives are alive to ensure strategic balance in the portfolio.
…and to align strategy with execution
Innovation portfolio management ensures alignment between the innovation strategy, the resources provided in the innovation process, and the execution of innovation projects. It does so by clarifying the guidelines of the innovation strategy in the strategic innovation portfolio management process (SIPM) and aligns it with the methods, tools and resources in the operational innovation portfolio management process (OIPM).
Let me provide you with a short overview of what the different focus areas contain.
Strategic Innovation Portfolio Management
The purpose of strategic portfolio management is to align the innovation portfolio with the objectives of the innovation strategy, but also to manage the portfolio composition (which is technically Tactical Portfolio Innovation Management). The SIPM function has four main responsibilities:
- Innovation portfolio selection criteria. Setting the strategic guidelines for the expected general outcome and balance of the innovation portfolio. They concern both the evaluation criteria for innovation projects and the expected balance of portfolio risk and return.
- Evaluation of new, ongoing and finished innovation projects. Utilizing the strategic criteria to approve and deny applications for innovation projects and to evaluate their progress and results.
- Strategic resource allocation for innovation projects. Dividing funds and other resources in the innovation process to ensure alignment between strategic intent and operational performance.
- Continuous evaluation and calibration of the innovation portfolio. As innovation projects report their status throughout the stage-gates of the innovation process the portfolio updates its overall status and makes required adjustments accordingly, ensuring strategic balance.
Operational Innovation Portfolio Management
The purpose of operational innovation portfolio management is to ensure that innovation projects are following the corporate innovation process and utilizes the appointed resources in a productive manner. Where SIPM is coordinating the composition of innovation projects OIPM is coordinating each individual project according to SIPM guidelines. OIPM has five focus areas:
- Preparations, development and analysis of innovation project applications. Utilizing the strategic IPM criteria to portrait the project’s potential to be submitted to the SIPM/IPMB.
- Allocating required resources for innovation projects. Ensuring that the most suitable resources are available to the project when required throughout the innovation process.
- Conducting innovation project’s phases. Executing the innovation project as defined by the innovation process using the incorporated innovation services and aligned resources.
- Continuous evaluation and reporting of innovation projects´ progress. Then at every stage-gate throughout the innovation process the project’s progress must be re-evaluated and re-submitted to the IPMB. Decisions are made regarding continuation, shutdown or modifications.
- Subletting innovation projects governance and exploitation. The main sequence of an innovation project is normally the development phase from need to launch. But managing an innovation doesn’t stop there, so preparing for governance and scaling it up is equally important. As is the continuing feedback reports of the innovation’s performance over time.
The Innovation Portfolio Management process
The above-mentioned models are of course very closely intertwined. SPIM steers OIPM and OIPM reports back to SPIM, so both are directly dependent upon one another. SPIM can set preferences for its innovation portfolio composition, but is in fact completely dependent on the innovation projects that are proposed and how they are pursued.
The process image below displays the simplified relationship between the processes of the strategic and the operative portfolio models.
The process flow highlights the nexus between the strategic guidelines, portfolio adjustments, and the directives for the innovation projects. Note the time ratio between the strategic activities and the operative activities are not on a 1:1 basis. The strategy processes are slower and more long-term, while the operative projects are faster and much more frequent.
Key portfolio responsibilities
The Innovation Portfolio Management Board
The key responsibility for the innovation portfolio strategy and tactics should be with an Innovation Portfolio Management Board (IPMB) within the Innovation Management Office. And there must be a synchronized integration between the central innovation strategy and the innovation portfolio guidelines, managed by the IPMB. Changes in the world, in the industry, or in the business environment may inflict major changes on the innovation strategy and those must immediately be reflected in the innovation portfolio guidelines to impact both new applications and ongoing projects.
Innovation project management
The responsibility for the innovation projects is divided between the IPMB and the organization’s ordinary Project Management Office (PMO). On the strategic level the IPMB makes the decision whether a project should be initiated or not. On the tactical level the IPMB and the PMO representatives collaborate with the sponsors and co-financiers as a steering committee for the project to make decisions on such things as resource allocation, progress reports, etc. Operatively projects are managed by the PMO managers in collaboration with innovation service specialists from the IMO. This way the innovation management organization is always involved in all innovation projects.
It may be mentioned that Innovation Portfolio Management is actually quite a big deal. It requires a lot of preparation and groundwork and creates the bridge between strategic innovation management and execution. I will return with some detailed articles on various portion of IPM later on, so stay tuned.
|Read part 4|