- Incremental projects that build on the company’s existing products, technologies, markets and customer base; and
- Innovative projects include evolutionary and revolutionary projects that, if successful, will propel the company into new technologies, markets, and/or types of customers.
The trouble is, neither of these views of the world is complete in itself. An innovation portfolio is just that: a portfolio. Portfolios behave differently from simple collections, and the overall risk and expected value of a portfolio of innovation projects is not a simple sum of the individual project risks and returns. In a well-constructed portfolio, the overall portfolio risk can be less–even much less–than the sum of the risks of its component projects.
Unfortunately, rather than looking for a healthy balance between incremental and innovative projects, the timid vs. bold dynamic sets up internal conflict within companies. The timid argue that innovation funding should go to the “sure bets” of incremental projects, while the bold argue that missing the big bets of innovation projects will leave the company with obsolete products in dying markets. Natural caution and the comfort of familiar products and markets tend to give the timid the upper hand in these conflicts. And often bold innovators give in to pressure to tone down the ambitions of their innovative projects to make them seem less risky, which unfortunately obscures the big upside potential those projects originally had.
Assessing and comparing these projects honestly and objectively can help a company cancel projects that have meager growth prospects. Many portfolio owners fear letting go of good projects when they present themselves, but by decluttering the innovation portfolio in this way, the company can free up both resources and management attention to devote to the remaining projects. Saying no to weaker projects lets management say yes to the ones with bigger upside potential. That lets the company pursue a much bigger and bolder vision for the future.