Lean innovation and portfolio management: what does the combination bring us?
The title of this blog seems to go for the top prize in 'buzzword bingo' with a combination of no less than four buzzwords in a row. Still, this combination has many advantages for large organizations, so read on ...
What is Lean innovation and portfolio management actually?
Lean innovation is an innovation method that is based on the well-known Lean start-up method of Eric Ries. 'Lean' stems from the Toyota philosophy in which as much waste as possible is avoided in business processes. And that is what Lean innovation is all about: we try to waste as little resources as possible on innovation.
Innovation is only successful if the customer buys the product or service and / or uses it satisfactorily. If you fail to get to the last step, at most you have had an interesting idea. Unfortunately, most innovations fail and companies find that the business case was not as successful as predicted. If that is already measured ...
With the lean innovation method, we start small, take our next step gradually and well-founded, and find out much faster whether the idea is really that good. And then we adjust it or we stop.
This immediately links to portfolio management. Product Portfolio management is a combination of activities that enable a company to select, develop and market a continuous stream of new products. This flow must contribute to achieving the strategic objectives and to continue to grow in the long term. It is often thought that this is a rigid and bureaucratic process that slows down innovation.
I disagree with this. I think that the combination of well-designed portfolio management and the lean innovation method contributes to the implementation and acceptance of the lean philosophy in the organization. It ensures that it is not something 'of the innovation department', but of the entire organization. I call this combination lean innovation portfolio management.
Ambidextrous organization, the organization with two speeds
We have to realize that a (larger) organization that wants to continuously innovate, operates according to different processes and different speeds. And that is good. This is also called an ambidextruded organization, or an organization with two speeds. The organization is focused on the execution or execution of their core business model. In addition, she is also innovating the same business model. The part that is aimed at implementation can be seen as an oil tanker. The part that focuses on innovation are the small, manoeuvrable speed boats.
When a company makes a new variant of a product, of which it knows the market and the customers well, the lean innovation method has less added value. It is perfectly possible to draw up a business case and put the product on the market according to the usual route. This involves the execution of the existing business model, and we call this process innovation.
Source Steve Blank
For Horizon 2 this applies business model innovation. This means that you change certain elements of your current business model. Think of a new target group, different distribution channel, or new product for existing customers. This sometimes changes other elements of your business model.
For Horizon 3, there is both an unknown market and an unknown solution. These are therefore completely new business models, which can potentially even undermine the current business model. An example of this is Philips, which sold light in a subscription form to Schiphol. (https://www.bits-chips.nl/artikel/schiphol-neemt-abonnement-op-philips-licht.html)
For projects that fall under Horizon 2 and 3, they must be managed in a different way. The Lean innovation method is a good solution for these types of projects. But what does this mean for product portfolio management?
Source Steve Blank
Lean innovation portfolio management
For projects falling under Horizon 1, there is often a product development process, or a stage-gate process. We work in clear steps from idea to implementation. A project is allocated a budget based on the business case and is scheduled based on available resources.
This is somewhat more difficult for projects falling under Horizon 2 and 3. And because the following things are not yet known:
- problem-solution fit: are we doing the right things?
Or we will first have to demonstrate that our idea solves a relevant problem and that the solution is relevant for the intended target group.
- product-market fit: our product is concerned really be bought?
In other words, we will first have to demonstrate that we can serve our target group satisfactorily with a minimal version.
- scalable: is our model sufficiently scalable?
Or do we succeed in convincing not only early adopters but also the mass market of our product?
This requires a different solution: lean innovation portfolio management. This has the following advantages:
- More focus on continuous innovation with a fair distribution of limited resources
- Grip and overview of initiatives from Horizon 2 and 3
- Guidance and focus for the corporate innovation team
More focus on continuous innovation with a fair distribution of limited resources
The problem in many organizations is that there is a limited budget and / or a limited number of resources that can do the work. If then a project falling under Horizon 1 with a certain return on investment it should record with a Horizon 2/3 project with a uncertain outcome, the latter loses out. This will nip real innovation in the bud.
Organizations must therefore learn to not only strive for continuous improvement, but for continuous innovation. Portfolio management can help with this. The available innovation budget is divided into so-called pots. A big pot for Horizon 1, and some smaller pots for Horizon 2 and 3. Resources will still be limited, but now a Horizon 2 project will only compete with other Horizon 2 projects. This ensures that sufficient effort is focused on Horizon 2 and 3, and thus innovation in the longer term.
Grip and overview of initiatives from Horizon 2 and 3
Lean innovation is aimed at step-by-step validation of a business model. Many corporates place Horizon 2 and 3 projects outside or at the 'edges' of the regular organization. The team must work independently as much as possible. At the same time, however, they lose grip and overview, which can lead to tension with the execution organization.
However, the lean innovation steps can perfectly be seen as a phase within a portfolio management process. This requires different KPIs than for process innovation, as much information is not yet known. You no longer allocate budget to the entire project (it is often not even known how much budget is needed), but per phase. In this way, the organization also keeps a grip on the initiatives falling under Horizon 2 and 3. It can learn what works and what does not work, what the average turnaround time is within a phase, and whether or not the objectives are being achieved. If executives are also involved in the portfolio reviews, this also helps with the internal acceptance of the 'innovation cowboys'. Just make sure these managers are trained to judge differently!
Guidance and focus for the innovation team
The innovation team is usually either housed in an incubator or is allowed to set to work themselves, often under the guidance of a lean start-up coach. The latter mainly coaches on the correct application of the lean innovation method. Sometimes the team is completely let go. The following goals can be pursued:
- integrate the new product into the current organization
- create a separate entity
Reporting and interim pitching of the progress to the regular organization ensures connection, provides focus and ensures support within the internal organization. This makes the process easier when the product is actually ready to scale up.
For larger organizations, the introduction of lean innovation portfolio management has many advantages: more focus on continuous innovation, grip on the business and guidance for the innovation team. The combination of lean innovation and portfolio management ensures that organizations can implement continuous innovation faster and more successfully, while still retaining grip and connection.