Dynamic Innovation Portfolio Management: Enabling Real-Time Portfolio Decision-Making

A BrightFire Guest Article by Noel Sobelman, Accel Management Group

We are delighted to publish this guest article authored by Noel Sobelman, a Partner at Accel Management Group and a longtime friend and partner of BrightFire. Noel is a domain expert and one of the most knowledgeable innovation advisors we know. For over 25 years, Noel has directed a broad range of transformational initiatives in innovation management, product development, new venture creation, portfolio management, product commercialization, and the software systems and digital technologies that enable innovation.

Noel is a frequent speaker, researcher, and writer on innovation effectiveness, disruptive innovation, and time-to-market reduction. To learn more about how Noel might support your innovation efforts, reach out to him directly via LinkedIn or via www.accelmg.com.

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Corporate innovation teams have always been challenged to focus on projects that will have the highest returns. Sometimes, our enthusiasm for new ideas can cause us to over-inflate innovation pipeline value. Recent world events such as the pandemic and the rise of global inflation present a new pressure, one that is focusing attention on speed, productivity, and agility of innovation portfolio decision-making. Company leaders are asking themselves how they can dynamically manage their innovation aspirations while accounting for today’s highly uncertain, rapidly changing marketplace.

Portfolio management is a fundamental element of the innovation system that provides leaders with the insight, data, and visibility to make decisions to fund the right mix of projects across all growth horizons. Individual projects are evaluated using criteria that measures value, risk, and alignment to strategic objectives. When performing well, decision makers optimize resource loading for priority projects to maximize value creation. Companies striving for growth through innovation realize they cannot do everything they want to do. Leaders must confront core business and new-growth tension and set priorities. Since resource capacity is the primary constraint in most organizations, decision makers must be comfortable saying no to many promising projects to ensure the success of higher value projects.

Resource management goes hand in hand with portfolio management. It is the discipline that governs the way resources are deployed to ensure that high priority projects are staffed for success. It provides portfolio decision-makers with the information necessary to optimize new product growth, productivity and project throughput by:

• Choosing the right number of projects (resource demand) relative to capacity (resource supply)

• Determining the capacity and cadence for new project initiation

• Understanding skill-set gaps

• Matching resource allocation to portfolio objectives in both core and new-growth portfolios

Early-Stage Portfolio Management Maturity

As companies improve their portfolio management practices, they progress through distinct stages of capability maturity. Early-stage portfolio management is characterized by periodic reviews where project data is gathered manually from individual project spreadsheets, reports are created and analyzed, projects are prioritized, capacity is determined, and funding decisions are made. Unfortunately, this stage is fraught with problems.

• Data collection is time consuming, taking weeks for some companies

• Project data is not kept up-to-date

• There are inconsistencies in project financials

• Project teams use different forecasting approaches

This results in portfolio managers spending valuable time chasing down missing information and correcting irregularities in proforma estimates. And worse, portfolio decisions are based on stale information and questionable data that is out of synch with changes in project plans or changes in the marketplace.

Dynamic Portfolio Management

The next stage of portfolio management capability, dynamic portfolio management, brings step-change performance improvement to companies looking to accelerate growth from innovation. Dynamic portfolio management is characterized by continuous, real-time decision-making using up-to-date data that is available for analysis whenever and wherever it is needed. Instead of being captured manually on disconnected spreadsheets, project data from across the organization is captured in a common portfolio management system that integrates a consistent set of strategic portfolio management, resource management, idea management, product line management, and project management reporting and analysis tools.

Figure 1. Decision data captured in a common system

When project data is captured in an integrated enterprise system it becomes possible to pre-configure standard portfolio views that represent the mix of dimensions needed to inform decision making. Leaders have up to date visibility into portfolio balance, value, strategy alignment, and resource supply and demand. Instead of waiting weeks to collect suspect data, decision makers have the information as needed, allowing them to identify projects or groups of projects for potential action and to manage constraints and unproductive tension proactively.

When consolidated project information is centrally housed in one system, individual managers can quickly and easily customize their portfolio analysis. A portfolio manager might start out with a standard, high-level view that displays monthly resource capacity versus aggregate project demand to help identify potential “red flags” such as downstream constraints. Once a constraint is identified, he or she can take a “deep dive” into a specific bottleneck function, role, over-allocated resource, or skillset, analyze alternative staffing scenarios, and determine corrective action. Portfolios can easily be “sliced and diced” in multiple ways over multiple time frames with different project data sets. Analysis that used to takes weeks pulling data from separate spreadsheets becomes instantaneous.

The benefits of dynamic portfolio management extend to other business processes as well. Individual project funding decisions, such as approvals at phase gates or new venture reviews, are made with knowledge of how go/no-go funding decisions align with portfolio objectives. Decision makers can make portfolio alignment and resource availability a pre-condition for receiving funding approval. Project Leaders are held accountable for working out staffing conflicts with business unit or functional resource “owners” in advance of the project funding decision. Teams come to the funding review with a staffing recommendation supported by the data and “what-if” analysis needed to ensure there are no major constraints or staffing issues ahead.

Dynamic portfolio management also helps remove the administrative burden and data inconsistencies inherent in cross-business unit analysis and decision making. As I pointed out in a previous article, ‘Innovation Portfolio Management: The Link Between Strategy and Execution’, it is important to distinguish between corporate portfolios (collections of business units and new-growth innovation initiatives), business unit portfolios (collections of core business innovation projects), and product lines (platform, brand, or franchise derivatives and line extensions). Each tier in this corporate hierarchy has its own unique governance mechanisms with different decision objectives and decision-makers. Operating at this scale is complex, but manageable when enabled by an integrated portfolio management system.Business unit portfolios, corporate portfolios, core product line portfolios, and new-growth portfolios can be viewed separately or combined.Using a common database, standard or custom portfolio views and performance dashboards are created on-demand for decision makers at any level in the corporate hierarchy.

Figure 2. Benefits of Moving to Dynamic Portfolio Management

The benefits of dynamic portfolio management are amplified in times of high uncertainty and rapid change. The COVID-19 crisis, our recent global bout with inflation, and supply chain challenges have accelerated the need for real-time decision making as companies evaluated and re-evaluated market scenarios, innovation strategy, project priorities, value chain disruptions, and customer buying behavior changes, all in the face of reduced capacity and reduced workplace productivity. As those sources of uncertainty have evolved in today’s market, the needs for fast, robust, timely decision-making persists.

Dynamic Portfolio Management Illustrated

The following system dashboard summarizes the results of a “what-if” scenario where a change to the strategic category mix, priority, and number of projects results in an improved 3-year projected outcome despite lower overall investment.

The pie chart at the top of the dashboard communicate the overall value of the portfolio in terms of 3-Year Gross Profit, and illustrates the source of that value by innovation category (Disruption, Innovation, or Renovation). The Bar chart indicates to what degree the organization is nearing its capacity limits. And the table at the bottom provides full visibility to the specific projects included in this portfolio, along with each project's risk level, resource requirements, financial value and other key attributes.

Figure 3. Example Portfolio Dashboard from the BrightFire App

Dynamic Portfolio Management Software Systems

The landscape for dynamic portfolio management software systems is a crowded one consisting of highly integrated systems that support multiple innovation process elements, point solutions, highly configurable systems, on-premises, and cloud-based SAAS solutions. Project Portfolio Management (PPM) systems, the most common in the integrated category, include functionality that enables strategic portfolio management, resource management, project management, and idea management capabilities. In recent years, the leading PPM vendors have added functionality to support additional business processes, including product roadmapping, team collaboration, and Agile project management. In many cases, these additional capabilities have been added through acquisition of smaller, niche solution providers. The tools market has come a long way expanding functionality and improving ease-of-use with leading vendors looking to differentiate with an integrated set of unique capabilities.

These increasingly broad and deep capabilities can come with a price, however, both in terms of license cost and implementation complexity. In choosing technology support for these processes, it is important to avoid getting distracted by the many advanced system capabilities. Rather, stay focused on the foundational capabilities and demonstrate improvement before layering in advanced functionality. (e.g., a crawl, walk, run approach).

Conclusion

The pace of change has accelerated with new digital technologies, emerging market growth, new business models, and competition from well-funded start-ups. At the current churn rate, half of today’s S&P 500 will be replaced over the next ten years. Annual or semi-annual evaluations of investment allocation and portfolio priorities are no longer enough. Companies need an “always on” process enabled by enterprise tools that allow them to continuously monitor, analyze, and make real-time modifications to their innovation pipelines.

Dynamic portfolio management enables an entirely new set of capabilities that addresses the limitations of previous approaches. Real-time portfolio analysis, made possible with up-to-date data captured in a common system, allows timely decision-making that keeps up with a volatile marketplace. Greater visibility and accessibility to current project information allows better decision making and innovation portfolios that are optimized for maximum value creation and return on R&D investment.

To learn more about how Noel might help you leverage Dynamic Innovation Portfolio Management in your company, reach out to him directly via LinkedIn or via the Accel Management Group website at www.accelmg.com. To learn more about how the BrightFire App can be used to enable Dynamic Innovation Portfolio Management, message us on LinkedIn, email contact@brightfire.co, call +1.651.301.8125, or complete the form on our Contact Us page and we'll get back to you right away.