Doing things right is arguably one of the key skills to develop innovative initiatives. Given the complex and risky nature of these projects, their execution is a mix of art and science. However, as challenging as it may be for companies and institutions to plan an innovative project, doing it right is only one side of the coin. The other side is doing the right things— precisely choosing the right projects. This is the domain of portfolio management.
In an ideal world, resources, both financial and human, would always be available for strategic initiatives, and thus all initiatives would be fully funded. However, as we all know, this is not reality; even strategic initiatives are subject to resource constraints and prioritization. In essence, portfolio management is about making process-based choices. It’s about saying no to a good idea in order to fund a better one1.
When there are multiple options for investment and multiple combinations of those options, choosing becomes complex. Just like the execution of the projects, the decision on the best portfolio of innovation initiatives also becomes a mix of art and science.
Since 2013 the Cisco Innovation Center in Rio de Janeiro has been involved daily in the process of co-developing innovative solutions with our customers and a diverse ecosystem of partners, including venture capital funds, startupssoftware and hardware vendors, Cisco channel partners, and research institutes. Those projects have been focused on several different verticals such as smart grid, smart cities, education, manufacturing, retail, and financial services, among others.
Throughout these years, in order to better define which initiative we should engage, some practices have stood out as the most relevant in our innovation portfolio management process:
- Strategic Alignment – The essential function of a portfolio, whether of financial assets, products or innovation initiatives, is to achieve the objectives of a given strategy. Thus, the first and most important practice is to ensure that is the things we choose to do are aligned with the strategy.
- Single Evaluation Model – Ensuring credibility and comparability among project options is essential for the correct selection and prioritization of initiatives. A single model simplifies the evaluation and comparison between various innovation initiatives.
- Balanced Innovation Portfolio – Diversifying assets to reduce a portfolio’s overall risk is one of the principles of modern portfolio theory2. A balanced innovation portfolio will allow you to maximize the return on investment.
- Iterative Governance and Execution – To appropriately address the inherent complexity and risk of innovation projects, you’ll need an agile approach to governance and execution that fosters cycles of validation and feedback together with iterative development and execution.
In this series of posts, I will share the experience we have acquired at the Cisco Innovation Center in Rio de Janeiro during the last four years. I will address those practices, as well as introduce some of the principles and concepts about innovation portfolio management.
And you, how are you coping with this challenge in your organizations? I would love to exchange information and experiences.
1 The Smart Organization – David Matheson and Jim Matheson
2 Harry Markowitz – Modern Portfolio Theory