Managing Your Innovation Portfolio
People throughout your organization are energetically pursuing the new. But does all that activity add up to a strategy?
In this Harvard Business Review lead feature article, Bansi Nagji and Geoff Tuff of Monitor Deloitte make the compelling argument that organizations require a balanced innovation portfolio and should manage for "Total Innovation." The companies we’ve found to have the strongest innovation track records can articulate a clear innovation ambition, the authors write. These companies have struck the ideal balance of core, adjacent, and transformational initiatives across the enterprise, and have put in place the tools and capabilities to manage those various initiatives as parts of an integrated whole.
In the article, the authors report findings from a study in which they examined companies in the industrial, technology, and consumer goods sectors, and correlated the pattern of companies' innovation investments with their share price performance. A striking pattern emerged: Outperforming firms typically allocate about 70% of their innovation resources to core offerings, 20% to adjacent efforts, and 10% to transformational initiatives. In contrast, cumulative returns on innovation investments tend to follow an inverse ratio, with 70% coming from the transformational initiatives, 20% from adjacent, and 10% from core.
The ideal balance, they write, differs from industry to industry and company to company, but one thing is constant: Companies should consider executing at all three levels of ambition and managing their innovation system deliberately. To help achieve Total Innovation, the authors articulate five core management areas to focus on: talent, integration, funding, pipeline management, and metrics.
For many companies, innovation will remain a sprawling collection of activities, energetic but uncoordinated. And for many managers, it will remain a source of frustration the authors write. For the leading managers, however, it represents an exciting and important challenge. By figuring out how to manage innovation as an integrated system within overall portfolio goals, they can harness its energy and make it a reliable driver of growth.