As I’ve written before, the portfolio is the pivotal tool for innovation. It provides the link to corporate strategy; ensures the desired balance across different innovation horizons; enables and communicates priorities; and with the appropriate communication it reports progress towards innovation goals. It is this final point that I would now like to explore.
In these days of big data, the old aphorism still holds, that what gets measured gets done. Most of the measurements in vertically integrated disciplines such as supply, sales and finance are common, widely understood between companies and often dictated by external standards bodies as in the case of finance. So factory managers are judged on line efficiency, sales people on top line revenue and margin, and finance on parameters such as cash flow.
Innovation is different. Very few companies structure innovation vertically; rather it’s a practice and discipline that involves many parts of the enterprise in a coordinated effort to deliver sustainable growth. Consequently there are many options for metrics to measure the impact of innovation. It can become more complicated with various parts of the company interested in different metrics, specific to their own departmental targets.
There are some key principles for innovation metrics. One is that leading indicators (what is going to happen) are more useful than lagging ones (what’s already happened), for the simple reason that there is usually time to do something about it. Another is that metrics related to output are more useful than those that report input. For example the future value of the innovation portfolio (leading, output) is a more useful metric than cost to date per project (lagging, input).
So how should innovation be measured? And, perhaps more importantly, how should innovation targets and departmental objectives be set? This is where the portfolio comes in, as a good innovation portfolio is a mine of information as well as a tool.
The portfolio will tell you how the mix of project types matches the strategic plan. It should have the value of each project and from that a view of the potential sales value by launch year. Using estimates of project attrition, a number can be put on the growth innovation can deliver over the timeframe of the strategic plan. If this doesn’t meet corporate objectives, hopefully time still remains to boost the size of projects in the pipeline. The portfolio communicates progress against plan in terms of milestones and launches.
Whilst other metrics specific to corporate needs may be useful for innovation, the core information for the dashboard comes from the portfolio. That’s why a key principle of good portfolio management is to minimise the use of alternative project portfolios. Ideally, every department should use the same one. It’s then easier to adapt the information it contains to populate individual plans.
Finally, perhaps the most important use of the dashboard is to ensure any objectives for different parts of the organization relate to the same information, namely the portfolio. There must be alignment and knitting together of potentially disparate constituencies, and the best way to do this is with shared objectives from the same source of information.
So, in summary:
- The portfolio is the key dashboard for innovation metrics
- The use of “alternative” portfolios should be avoided
- Innovation teams should use the same targets and objectives
The portfolio is not only the pivotal tool for innovation success; it’s the key informer of progress towards innovation goals and the best way to bond teams together.