20
Dec

Lean innovation and portfolio management: a powerful combination

This blog’s title seems to head for the first prize in the ‘buzzword bingo’ combining at least four buzzwords. Nevertheless, this combo offers many benefits for larger organizations, so read on…

What is Lean innovation and portfolio management?

Lean innovation is an innovation method based on the Lean startup methodology of Eric Ries. ‘Lean’ springs from the Toyota philosophy in which waste is being prevented in business processes. And this is key as well for Lean innovation: we try to waste as little as possible resources for innovation.

Innovation is only successful if the customer buys the product or service and/or uses this to his satisfaction. If you don’t succeed to come to this final step, you had an interesting idea but nothing more. Unfortunately most innovations fail and companies find out that the business case was not so successful as forecasted. If measured at all..

When applying the lean innovationmethod, we start small, take our next step gradually and validated, and we learn whether the idea is really that good. And then we adjust (pivot) or we stop the initiative.

The above directly links to portfolio management. Product Portfolio management is a combination of activities that enables a company to continuously select, develop and market new products. This continous stream must contribute to achieve strategic objectives and grow in the long term. Often people think this process is rigid and bureaucratic, and slows down innovation.

I disagree. I believe that the combination of a well set up portfolio management and the lean innovation method contribute to implementation and acceptance of the lean way of thinking in the organisation. It will make sure that it is not something of the innovation department, but of the entire organisation. I have coined this combo lean innovation portfolio management.

Ambidextrous organisation, the organisation moving at two speeds

We have to acknowledge that larger organisations striving for continuous innovation, operate with different processes and speeds. And this is okay. This is called the ambidextrous organisation, or an organisation moving at two speeds. The organisation is focused on execution of their core business model. Next to this it is also working on innovating that very same business model. The part that is focused on execution can be seen as an oiltanker. The part focused on innovation are the small agile speedboats.

lean innovatie portfolio management

Source: http://www.slideshare.net/keesvannunen/presentatie-online-tuesday-41477300

When a company makes a new variant of a product, of which it knows the market and customers well, the lean innovation method is of little added value. It is perfectly possible to draft a sound business case and market the new variant following the usual procedure. This is executing the existing business model, we call this process innovation.

lean innovation portfolio management

source Steve Blank

Horizon 2 is about business model innovation. This means that you will change certain elements of your current business model. Think about new customer groups, other distribution channel, a new product for existing customers. This change will also impact other elements of your business model. Horizon 3 faces both an unknown market and an unknown solution. Hence, completely new, disruptive business models.

Projects that fall under Horizon 2 and 3, need to be managed in a different way. For this kind of projects the Lean innovation method is a good solution. But what does it mean for product portfolio management?

lean innovatie portfolio management

source Steve Blank

Lean innovation portfolio management

For projects in Horizon 1 often a productdevelopment process or stage-gate-process is used. In clear steps the team works from idea to implementation. A budget is awarded based on the business case and a planning is made based on available resources.

This process does not work well for projects in Horizon 2 and 3. Mainly because the following is still unknown:

  1. problem-solution fit: are we doing the right thing?

We will have to prove that our idea solves a relevant problem and that our intended solution is relevant to our targeted early adopters.

  1. product-market fit: will our product actually be bought?

We will have to prove that we can satisfy our target audience with our minimal viable product.

  1. scalable: is our business model sufficiently scalable?

Are we succeeding in not only convincing early adopters but the early mass market as well?

We need a different solution for this: lean innovation portfolio management. This has the following benefits:

  1. More focus on continuous innovation with a fair distribution of limited resources
  2. Grip and overview of initiatives in Horizon 2 and 3
  3. Grip and focus for the corporate innovation team

More focus on continuous innovation with a fair distribution of limited resources

Most organisations face a limited budget and/or number of resources that can deliver. Subsequently, when a  Horizon 1 project with an almost certain ROI will have to compete with a Horizon 2/3 project with an unsure outcome, the latter will lose. Because of this real innovation does not get a fair chance.

Organisations therefore not only need to strive for continuous improvement but also for continuous innovation. Portfolio management can stimulate this. The available innovationbudget is divided in baskets. A large basket for Horizon 1, and smaller baskets for Horizon 2 and 3. Resources will remain restricted, but now a Horizon 2 project will only compete with other Horizon 2 projects. This will guarantee that sufficient focus is directed towards Horizon 2 and 3, and hence innovation in the longer term.

Grip and overview of initiatives in Horizon 2 and 3

Lean innovation is focused on step by step validation of a business model. Many corporates use incubators or place teams at the outskirts of the organisation. The team needs to work autonomous as much as possible. At the same time the organisation loses grip and overview, which can cause tensions with the executing organisation.

The lean innovation steps can perfectly be seen as a stage within a portfolio management proces. We will need different KPIs then for process innovation, because much information is still unknown. Budget is not awarded to the full project (how much is that anyway?), but per stage. In this way the organisation will keep grip on Horizon 2 and 3 initiatives. It can learn what works and what doesn’t, what the average lead time is, whether or not targets can be met. Involving managers from execution in portfolioreviews, will benefit internal acceptance of the ‘innovationcowboys’. Make sure these managers are trained to judge these projects in a different way!

Grip and focus for the corporate innovation team

The innovation team often is coached by an incubator, or can do it theirselves, often with the guidance of a lean startup coach. Coaching is focused on applying the lean innovation method. Sometimes the team is on its own. Eventually the new product will be integrated in the execution organisation, will become a separate entity or will be sold. Reporting and in between pitching of the progress will stimulate connection, provides focus and buy-in for the internal organisation. This will ease the process when the product is ready to be scaled up.

Conclusion

For larger organisations introducing lean innovation portfolio management holds many benefits: more focus on continuous innovation, grip and focus for the innovation team. The combination of lean innovation and portfolio management will enable organisations to accelerate continuous innovation, whilst keeping grip and connection.

Joyce Oomen is founder of Pimcy and helps companies accelerate in innovation by among others advising and implementing  lean innovation and product portfolio management.