Paulson, A. S., Gina, C. O., & Robeson, D. (2007). EVALUATING RADICAL INNOVATION PORTFOLIOS. Research Technology Management, 50(5), 17-24,29.
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Executive Summary
The subject covered by this article is the evaluation of radical innovation (RI) portfolios. Many companies want to launch breakthrough innovations (=RI) at the same time and manage them as well as possible. However, these innovations are very risky and may not achieve their objectives at any time. The choice to invest in RI depends on evaluation of these projects and company’s capacity. Generally, the ways of estimating value are proper to each company. This is also why the authors of the article wanted to propose a more formalized tool to sensibly valuing company’s portfolios.
The context of approaching RI might sometimes be risky because of the high level of uncertainty and the long cycle time of decision to undertake radical innovation. With those innovations, managers face 2 problems: lack appropriate evaluation tools for these types of projects and difficulties of managing in the context of large firms where many processes are built towards repetition and continuous improvement. However, more and more firms encourage RI portfolios creation by setting up “RI hub” (= RI team). As economic value such portfolio is so hard to quantify, RI teams need a tool that helps to articulate the value of the RI portfolio at any point in time as well as the change in its value over time.
These key insights have 3 managerial implications. The first one is that a manager should set up a radical innovation hub who can handle and manage the innovation portfolio. They have to be able to communicate on a regular basis the value of their work in order to re-ensure themselves and the rest of the company on the quality and the advancement of the different innovations and to justify RI’s presence in portfolio. The second one is that learnings from one project are often transferred to other projects in the RI portfolio as well as to existing businesses in the mainstream organization. This implies that a manager should try to keep working with the same people as much as possible. The third one concerns big firms which have many RI in development at the same time. A manager has to organise the communication between the different projects. Learnings of one project can be useful in another one no matter what subject is covered.
We identified 3 limitations about evaluation tool. The first one is that it cannot quantify RI contributions in a monetary way. This complicates justification of the presence of RI in portfolio to shareholders. The second one, linked with the previous one, is that without ability to provide a monetary value of these projects, shareholders tend to recover to classical financial tools of evaluation. And finally, the article gives a lot of parameters about the tool, but anyone takes account the externalities of innovation which could impact external world. The third one is that by not taking account externalities, the evaluation of RI portfolio could be distorted.
Further references:
Brasil, V. C., Gomes, L. A. V., Salerno, M. S. and de Paula, R. A. S. R. 2017. Multilevel approach for Real Options in the innovation management process: integrating project, portfolio and strategy. International Research Network on Organizing by Projects (IRNOP) 2017, UTS ePRESS, Sydney: NSW, pp. 1-14.
Danesh, D., Ryan, M.J. and Abbasi, A. (2017) ‘A systematic comparison of multi-criteria decision-making methods for the improvement of project portfolio management in complex organisations’, Int. J. Management and Decision Making, Vol. 16, No. 3, pp.280–320.
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(Article) Nieto-Rodriguez, A. (2016). How to Prioritize Your Company’s Projects, Harvard Business Review. . Accessed December 15 2017.https://hbr.org/2016/12/how-to-prioritize-your-companys-projects
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Nieto-Rodriguez, A. (2016). How to Prioritize Your Company’s Projects, Harvard Business Review. Accessed December 01 2022. https://hbr.org/2016/12/how-to-prioritize-your-companys-projects
Executive Summary by: Adrien Valette, Charlotte Callebaut, Leonard Bandermann, Lise Halluent, Lyne Keller ___________________________________________________________________________
In this article, the author highlights the importance of prioritizing strategic objectives in a company. Based on these strategic priorities, executives can decide and focus on conducting those projects, which are in line with the company’s strategic focus. This gives employees a better understanding on how to perform their operative tasks and what actions matter the most. It allows to synthesize strategic goals into operational task. In the end, this can result in reduced costs due to cutting unsuitable projects and better execution done by employees.
Two main managerial applications can be drawn from the findings of the author. First, executives and senior managers need to define the purpose and strategic vision of their company. This is the fundament on which priorities can be derived from. The more a project suits to the strategic objective and purpose of the company, the higher it should be prioritized and the more (limited) resources should be spent on the project. This will enhance the alignment between the top and the rest of the organization as every participant is focusing on the same goals, only on a different (hierarchically) level. Second, managers not only need to be able to point out the purpose of the company, but also to focus on a limited number of a few strategic objectives that will create the focus of the company’s business activity. The higher the strategic focus, the stronger the positive effect in terms of cost savings and alignment between hierarchy levels. Therefore, companies can profit from executives and senior managers that are prone to risk and have the ability to make a decision without fearing to miss out.
Limitations to focusing on a few strategic objectives and prioritize projects accordingly can be also found. Large companies with a lot of subsidiaries can use their size as a means to enter more markets and increase their growth. An example of this is “The Virgin Group” which conducts projects in many different sectors. Another example can be found in many big financial groups, which use their large amount of funds to diversify their project portfolio, thereby reducing financial risk.
Further information on the topic can be found in the papers cited below. The first summarizes different approaches to accelerated innovation by using focused project teams and apply effective portfolio management. The second deals with the important role of values and reprioritization of activities in the field of sustainable innovation.
Cooper RG. Accelerating innovation: Some lessons from the pandemic. J Prod Innov Manag. 2021;38:221–232. https://doi. org/10.1111/jpim.12565
Show lessBreuer, H., Lüdeke-Freund, F., & Bessant, J. (2022). Editorial — Special issue: Managing Values For Innovation. International Journal of Innovation Management, 26(05). https://doi.org/10.1142/s1363919622010010