Freeing Your Portfolio For Innovation & Growth

Exploring why and how innovation at a portfolio level rather than a product idea makes a difference to company growth

Maybe the competition is adding pressure, maybe customer needs are outpacing development or maybe there is a potential market/environmental shift on the horizon. Whatever the reason, one thing for sure rarely is the answer focusing on a single product idea to bet your company's future isn't the answer, but this is the well-trodden path that follows. 

What I typically observe is companies over 10-15 years old, or companies over a certain size, carry more governance and controls as to be expected. Governance is not necessarily a bad thing, after a certain size, or by learning over time, governance can be a great enabler for more complex environments to operate cohesively. That said, this requires review and change, not just a simple reliance on habitual inheritance. What I mean here is a well-intended control introduced at a given time, solved a problem for yesterday, but might not be good for today. So the existence of such control shouldn’t be taken as an immovable object and should be challenged if the control has shifted from an enabler to a constraint.

Given the above, when products reach a lifecycle age of maturity, and/or where many products are managed by portfolios, companies are subject to governing these products and portfolios, to protect revenue. And these habitual and inherent governance controls, have often shifted from being an enabler to a constraint, mainly for innovation in this context. A company becomes risk-averse, reduces the innovation funnel or puts in more controls to try and ensure ROI, and/or is faced with the classic Innovators Dilemma.

Just a few of the many examples of when this problem manifests includes, but is not limited to some of the following symptoms:

1. Ideas require long-winded business cases to get basic funding, which requires ROI at the earliest phases of resource requests. Innovation cannot predict ROI at the earliest phases. That’s not to say research is absent, but when a business model isn’t validated, then ROI is the best guess and often a falsified number to pass a gate.

2. The innovation funnel is inverted: More ideas exist on the right side of a lifecycle (executing on known business models) than on the left (exploration). A company that innovates well, should be managing lots of small bets, with a high failure rate on the left of the funnel.

3. The investment/product councils focus on management accounting and fail to observe trends and adopt innovation accounting.

4. As there is a risk-averse culture, typically projects dominate performance. PMO’s focus on delivery and outputs over outcomes. (Transforming to A Product Portfolio Office may help overcome this).

5. Innovation is annexed to dedicated areas/teams. Innovation is limited to net new ideas, which don’t challenge or disrupt the core business. They then struggle to find ways and means to Cross The Chasm, resulting in a graveyard of opportunities. 

In environments where some of these problems typically manifest, leaders are left with some form of reactive, insurgent-style innovation panic. They need to improve or sustain their top line, which is being threatened or reduced, some pioneers try to innovate internally with limited effect as the organisational immune system limits their impact, and then eventually they call in external innovators to help. Now there are 2 types of responses here depending on your innovation definition:

1. Tactical - We have a new business idea. We need to work with experts in a space that is not at our core to help us develop and test our idea quicker and cheaper. This will accelerate our way to launch into a new space. 

2. Strategic - We need to review and transform our company to innovate continuously to respond for all our products and break out of the innovators dilemma. This means reviewing our operating model and implementing a more resilient portfolio. This is what I call implementing a Product Operating-Model; evolving a company to become an ambidextrous organisation which can simultaneously explore and exploit. This involves evolving tech, people, culture, processes, leadership, operations, data, mechanisms, and more. 

In the high majority of cases, the problem is strategic, not tactical, but strategic change requires a longer view commitment which impacts more of the organisation. Not everyone has the apatite or is empowered to solve this. In light of this, when faced with the strategic frontier the tactical becomes the focus and the distraction (innovate over there, not over here). I’m not saying you won’t get value from option 1 by having a tactical program, but don’t expect that alone to solve the strategic problem or constraint in the wider portfolio. 

To overcome this I think it’s vital to differentiate the problem up front and really understand what problem or problems you need to solve :

1. We have a new idea and need help to explore experiments, and leverage new skills and capabilities. - Tactical focused response and can be solved within a defined business function/area.

2. Our business/portfolio is performing below expectations and we are struggling with organisational agility and resilience. We are project-focused, accountability is blurred and we are not able to scale ideas or improve - Strategic focused response, which impacts multiple functions and products.

If one seeks to resolve problem 2 above, then the first practical next step is to undertake a state analysis of your current capabilities. This will set a foundation and reveal select areas to focus on to transform, underpinned by success criteria to evaluate through your journey. You might also discover great opportunities internally that could be more impactful if amplified. This doesn’t require change everywhere and a Boil The Ocean approach, but will allow you to balance thinking big and starting small, with a targeted, measured approach to a longer capability development program.

I hope sharing this stimulates some thought and if you have any experiences or thoughts to add to this, please comment below.

You can read more on my adjacent article here - Avoid Innovation Myopia By Focusing On Portfolios