Portfolio Question #3

Does the portfolio reflect our business strategy? By business unit?

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Innovation portfolio reviews are often focused on the numbers. In an earlier post, I wrote about the difficulty of dealing with uncertainty in the projections and estimates we make at the individual initiative level. It is also important to look beyond the numbers and determine whether the allocation of investment and expected return from the innovation pipeline at the corporate level matches your company’s business strategy.

Once we’ve covered top-level growth expectations, we should ask whether the allocation of investment in innovation across business units and/or product lines makes sense. If your company lacks a clearly defined business and innovation strategy, then asking this question during portfolio reviews will highlight the gap and hopefully lead to a more thorough understanding of the necessity of being thoughtful about how we allocate innovation resources.

The simplest way to set strategy is to ask each member of the portfolio committee what they believe is the optimal allocation of investment in innovation across business units, product lines, or whatever subdivisions exist in your structure.

I work with a pharmaceutical company with products covering five therapeutic areas. We went through this exercise and each of the committee members had a different idea about how to invest the corporate innovation budget. Their answers were the basis of a collaborative process that set the ideal allocation for the corporation. With that, we were able to critically evaluate the portfolio each quarter and proactively shift investment to match the strategic allocation set by the executive team.

Misallocation of investment is particularly acute when there is a dominate core business that is no longer a driver of growth. It takes a strong portfolio review committee to proactively shift investment away from that business and into smaller, but more promising, alternatives. You can do this for your company by asking this smart, but thought provoking question during your next portfolio review.