A company’s portfolio of innovation and new product development projects is its engine for growth. New products and product and technology innovations replace products that are at end of life, and they provide the company a way into expanded and new markets.
You expect your innovation portfolio to generate sizable future revenue growth. But will you achieve that growth target? Can you get more revenue with the same investment?
From sixteen years of analyzing innovation and new product development portfolios, SmartOrg knows that half of the growth your portfolio generates depends on how much you spend, and half on how you spend it. You already know how much you spend on innovation and new product development. SmartOrg can show you a way to measure whether you’re spending it on the right mix of projects.
We call this measurement Portfolio Power. It depends on two things: how many of the projects in your portfolio have large expected returns, and how many have a high chance of success. Amazingly, just these two factors can predict how much growth your portfolio is likely to generate, and how likely it is your portfolio will meet your growth goals.
Even better, the Portfolio Power assessment can give you guidance on where and how to adjust your portfolio to generate more revenue growth. You can use the analysis to drive effective conversations with project owners and corporate executives about which projects have the most growth potential and which ones don’t make sense.
Shawn Williams of Rogers Corporation shared with the course attendees his company’s experience with the method (which he helped to develop). Rogers has used the Portfolio Power concept to help decide which projects to cancel for lack of growth potential and which projects to pivot to increase their growth potential. The culmination of Rogers’s efforts has been a doubling of its Portfolio Power and a massive increase in both the average project value and the total value of the portfolio.
During a recent Stanford Executive Education course on strategic portfolio decision making, forty-five executives shared information about their growth goals and the innovation portfolios that they hoped would deliver that growth. The executives represented companies from small to very large: half fell into the range of $60 million to $4 billion in revenues, with the median size being $750 million.
The executives were asked how much growth they intended to deliver over five years. Half of them had targets in the range of 10 percent to 80 percent, with the median value being 25 percent. That is, the median target was to have revenues in year five to be 25 percent greater than in the current year.
SmartOrg led an exercise to estimate the chance that each executive’s portfolio would meet his or her growth goal. The result:
Clearly a substantial number of these executives need help in getting their portfolios to generate more growth. (And possibly some need help in setting more ambitious growth goals.)
To determine these chances of success, SmartOrg helped the executives evaluate how their innovation resources are allocated. Each executive estimated the percentage of big projects – defined as ones that would contribute more than 5 percent growth if successful – in the portfolio. Then each executive estimated the percentage of projects that are easy – defined as having greater than a 50 percent chance of being successful.
From these two estimates, the executives calculated what percentage of projects in their portfolios fell into four categories: