Follow these 5 steps to develop and manage your corporate innovation portfolio.
Are you responsible for investing (money and/or people) in innovation? Whether you’re responsible for the continuous improvement of existing products and services, the development of new ones, or even the creation of brand new business models, these 5 steps will help set you up for success.
What does Entrepreneurial Governance Mean and Why do we Need it?
The term Entrepreneurial Governance refers to the structures and processes by which an organisation manages its investment in innovation. When we establish Entrepreneurial Governance, we have two main goals in mind:
to ensure precious resources are directed against the business’ strategic priorities
to create a systematic, fair and transparent process for innovators to take ideas and secure resources to develop them.
There’s lots of good literature on why we need a different approach for managing innovation compared to the core business. Here’s one of my favourite articles on the subject from Steve Blank, and another from Tendayi Viki. This article is not about making the case for why you need to manage innovation differently. Instead, my objective is to take you through five practical steps to set Entrepreneurial Governance up.
At the core of this approach are portfolio and strategy. Many companies make the mistake of making big bets on one big, unproven idea. Some ideas will work, the majority will not, and unless you’ve purchased a crystal ball recently, you can’t predict the future - no matter how clever and experienced you are. Your best chance of success is to take a portfolio approach, much like a venture capitalist. At the other end of the spectrum to big bets, taking the ‘let a thousand flowers blooms’ approach is unhelpful and counter-productive if you can’t systematically invest in them all and they don’t relate to the strategic priorities of the company.
Let’s get into the details…
Step 1: Define the Scope of your Innovation Portfolio
A portfolio definition should be short, simple and easily understood by anyone in the company. The purpose of a clear portfolio definition is that it helps you, as a corporate ‘investor’, quickly figure out if a project or idea should be in or out of your portfolio. It also provides clarity and transparency to innovators generating ideas - they know what to focus on and which portfolio to take a specific idea to.
Being clear about what is in and, perhaps more importantly, out of scope of your portfolio is the first step. Particularly if you are creating a portfolio for a specific area of business within your company, clarity on what the portfolio is about and what purpose it serves is important. For example, you may be responsible for investing in new and emerging technology but not data and analytics. If you’re an HR leader, perhaps the scope of your innovation portfolio concerns the improvement of HR process and policy for existing staff, and recruitment is out of scope. When considering your portfolio scope and definition, you should also consider what your vision is for your business - your portfolio shouldn’t contain investments that don’t contribute to it.
Whenever people have missed this step out, thinking the scope will somehow crystalise later in the process, they always end up having to return. Without this clarity from the outset, the subsequent steps are much harder.
Step 2: Map your Current Portfolio
Once you’ve decided on the scope of your portfolio, map all existing products, services or business models within scope. We like Strategyzer’s Explore & Exploit Portfolio Map. It was designed for business models, but we’ve used it a lot to map products and services. Ideally, aim to be consistent with what you’re mapping (i.e. either business models OR products OR services) but be pragmatic and map whatever is most useful to you. We recommend mapping anything you’re investing money, people and/or time in. You may also want to map other projects or initiatives that you are not directly investing resources in, but which contribute towards your portfolio goal. If you do, colour code them separately.
Whilst we’re big fans of data-informed decisions, we’ve seen teams get caught up for months collecting data and analysing spreadsheets before making a decision about which quadrant to place a project in. By which time, it’s probably out of date. It is best practice to find ways to routinely collect the data you need to support your decisions but, as a first pass and to get you moving, it’s perfectly acceptable to just stick a post-it on the map in your best guess location.
A visual representation of what your current portfolio looks like is extremely powerful. At a glance, you (and others) can see where you’re investing and how vulnerable your business is. For example, if you have lots of items in the top left quadrant of the Exploit portfolio - where most of your revenue or value is coming from but they are at high risk of disruption - alarm bells should ring loud and clear. Even more so if you don’t have much coming through from the Explore portfolio to replace them.
This visual representation also supports transparency on where resources are being invested. One leadership team I worked with thought they didn’t have much innovation activity and expected their current Explore portfolio would be largely empty. But when we mapped it, we found lots of R&D and early innovation projects that fit squarely in there and were costing millions of pounds. The senior leader had no idea that parts of R&D and innovation were investing so heavily in projects they believed related to the senior leader’s line of business - he’d had no visibility of this, which clearly was an issue in itself!
Step 3: Assess your Current Portfolio
This is the moment to take stock of what your current portfolio looks like, how healthy it is and how well it reflects your vision. Key questions to ask yourself:
What’s the balance of investment between Explore and Exploit?
Is it aligned to our vision?
Do we have investments across different horizons of innovation (from continuous improvement through to real disruption)?
Which way are items moving in Explore? Up and to the right (increasing in potential value and consistently reducing innovation risk) or are projects stuck?
Which way are items moving in Exploit? Up and right - increasing in ROI/value and reducing the risk of disruption - or are items moving down and left - increasing risk of disruption and reduced ROI?
Where are there gaps in our portfolio?
What items are in the danger zone (i.e. high earners at high risk of disruption)?
Your answers to these questions should be analysed alongside trends and factors you anticipate will impact your business in some way. If there’s a new reality round the corner, is your portfolio ready for it - whether that’s to protect existing business or take advantage of emerging opportunities? What do you want your portfolio to look like and what adjustments need to be made to how you’re investing?
Step 4: Develop your Innovation Strategy
Strategy is often over-complicated and incomprehensible (my earlier article on The 7 Types of ‘Not Actually Strategy’ Strategy refers). What we’re aiming for instead is something that sums up in clear language where your business is, where you want it to go and what types of investments you want to make to get you there. It should also include statements on where you’re going to reduce investment in order to free up and reinvest precious resources for innovation. It should serve as a powerful communication tool to your teams, to other leaders in the business and to anyone who contributes or impacts the future of your business, providing clear boundaries and focus.
An innovation strategy is not a plan, but a series of hypotheses about the future, our intended actions, and the desired impact of those actions. It should be reviewed at a regular cadence and adapted accordingly. For more on this, my article with Tristan Kromer on Adaptive Strategy takes you through this step by step.
As with the mapping exercise, you want to be careful not to get stuck at this stage. I’ve often heard; “We can’t write the strategy until after our team offsite in 3 months time”. That’s too long and in the meantime you’re investing resources now. If you’re really stuck, at least write down what you’re currently doing - how you’re currently making investment decisions - and adapt it later.
Step 5: Manage your Innovation Portfolio
The final step is to set up the processes and structures to manage your innovation portfolio on a continuous basis. First up, steps 2-3 above should be repeated at an agreed cadence. Your Portfolio Map is not a once-and-done exercise, it’s not static - it should always be ready to serve as a visual representation of the current state of your portfolio. In my experience, doing this on a regular basis needs to be a clear part of someone’s job description or it just doesn’t happen.
The next thing to think about is how you want to bring new ideas and projects in and take them through your innovation pipeline. How do innovators bring ideas to your portfolio? You may choose to run a series of time-boxed hackathons or idea challenges focused on a specific aspect of your innovation strategy. Or you may decide to have an open door - innovators can bring an idea (so long as it aligns with your innovation strategy) at any point. How do you want innovators to pitch ideas? Do you want them to fill in a short template or provide a verbal presentation?
Next, decide (and be clear and transparent about) who will make investment and scaling decisions on those ideas and how those decisions will be made. I’m an advocate of Growth Boards (also known as Investment Boards or Decision Boards), so long as they are well-run and adopt the right mindset. I’ve seen plenty, however, that haven’t. Key to a good Growth Board:
A small group of the right people - people who own resources and are empowered to make decisions. Having too many people in the room with unclear roles and responsibilities makes quick, effective decision-making impossible.
Frequent meetings to keep ideas flowing and encourage progress.
Evidence trumps opinion. Any HiPPOs can exit the room now (HiPPO = Highest Paid Person’s Opinion).
No attendance, no vote - either show up or send an empowered delegate.
The bottom line is, you’re looking to move projects in and either out or through your Explore portfolio as quickly as possible, so structure your decision-making group to support that goal. The behaviours and mindset of Growth Board members is also important. Too often, I’ve seen them operating with an Exploit mindset, for example asking questions about scaling when the team is still validating the customer problem. Training members and having a coach on the board helps with this.
One word of caution on the on-going management of your portfolio: keep it as simple and streamlined as possible. As is often the case in large, bureaucratic organisations, there’s a tendency to overcomplicate and add unnecessary layers to the process. When I’ve seen this happen, instead of providing an effective channel for employee creativity, it creates even more frustrations and innovators do what innovators do best - look for ways to circumvent it.
Summary
Entrepreneurial Governance is the structures and processes inside an organisation that enables it to manage its investment in innovation. The goals of Entrepreneurial Governance are to ensure precious resources are directed against the business’ strategic priorities and to create a systematic, fair and transparent process for innovators to take ideas and secure resources to develop them. We have developed 5 steps to establish Entrepreneurial Governance, which we have applied ourselves as well as supporting numerous business leaders to do so too. They are:
Define the scope of your innovation portfolio
Map your current portfolio
Assess your current portfolio
Develop your innovation strategy
Manage your portfolio on an on-going basis
Yellow Cat Innovation runs bespoke workshops and executive coaching where we can take you and your teams through these 5 steps to set up Entrepreneurial Governance in your business area. If you’d like to explore how we could help you, please get in touch.