When there is no agreement on what are the important activities an organization should take to meet its strategic targets, goals are left up to chance. This is especially true when speaking about innovation projects. It is necessary to measure innovation at the process and project level and at the portfolio level. This helps ensure alignment among management that the company is taken on the appropriate amount of risk, as well as that the individual projects will take the organization where the strategy dictates. Innovation portfolio metrics assist in the aligning of organizational priorities.
Innovation portfolio metrics
Innovation portfolio metrics are different that other innovation process metrics. They are not idea focused but rather project focused. Through the innovation portfolio, innovation risk appetite is monitored and in balance. A portfolio filled with incremental improvement projects will not make a drastic change in the market place, and yet too many breakthrough or disruptive innovation projects may place the company in too much risk. Of course, the blend risk within a portfolio is based on management’s appetite and strategy.
Insight into return on investment
In addition, insight into return on investment (ROI) begins to come into focus with innovation portfolio metrics through examining the financial metrics. This aids in financial forecasting and selecting future projects. More importantly however, innovation portfolio metrics monitor the individual innovation projects selected to move forward. The monitoring helps ensure that the needed focus and resources are available to make the projects successful.
Five recommended innovation portfolio metrics for an innovation program:
Portfolio Financial Results
Predicted Revenue/Earnings (Annual & Cumulative)
(by Project, in Total)
Expected Degree of Variability in Revenue/Earnings
(by Project, in Total)
Amount of Investment
(by Project, in Total)
Innovation Type Portfolio Mix (Incremental, Expansion, Disruptive)
Type & Amount of Risk (Market, Technical, Operational/Executional) (High, Medium, & Low)
(by Project, by Calendar)
The metrics are ideally reviewed each time the innovation project portfolio management team convenes. Frequency of portfolio review may need to increase with a riskier blend of risk or projects at risk of not hitting plan. Formality of reporting is dependent on the maturity and size of the innovation program. This can range from a simple report to a formalized dashboard or scorecard.
Decisions and actions are driven from the reporting of metrics. Actions resulting from innovation portfolio metrics will include determining which projects to kill due under performance or greater insight, change of project priorities, removal of constraints, revising the amount of available resources both funding and people. Although market forces are not part of portfolio metrics, keeping them in mind will also aid in decision making.
The innovation portfolio is separate from the normal project management portfolio. Therefore, innovation portfolio metrics should also be separate from project management portfolio metrics.
Projects resulting from an innovation program are often different in nature, timeline and resources. As a result, they need to be monitored separately. This also gives insight into the success of the innovation project and the innovation program.
An innovation program has many components. Innovation project portfolio management is one of them and is critical to the overall success of an innovation program. Establishing a consistent and decided set of innovation portfolio metrics is a useful tool for strategic alignment of projects, balancing risk, optimal utilization of resources, and ensuring project success.
image credit: symbid.com
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Daniel Nolan is the Founder & Chief Idea Guy/Principal Consultant at Denovo, an innovation consulting group, where he partners with clients to promote sustainable growth and build innovation capabilities. Daniel developed the Rapid Deployed Innovation System (RDIS) and Holistic Integrated Innovation Framework (HIIF). His company is dedicated to a holistic approach based on real world consulting experience, psychology of the creative process, and current academic research.