Over the past decade, many manufacturers have established a formal innovation portfolio review process to manage their product pipeline. Yet despite the obvious benefits-improving return on investment, increasing pipeline throughput, and aligning investments with strategic goals-executives still complain that results are not always what they expect.
Many decision-makers blame the process, but further analysis suggests that the issue frequently lies with the participants.
In fact, informal surveys find that "human factors and internal politics" are the most common cause for portfolio management failure. In response, many leading companies are bringing in knowledgeable outsiders to help guide their innovation portfolio investment decisions.
Five Common Portfolio Review Pitfalls
While companies have invested in improving their portfolio review processes, there are five common scenarios in which negative dynamics undermine the portfolio committee's integrity and threaten investments in the process:
- Executives with override authority (overt or implied) dominate the portfolio review process and support pet projects without regard for key success metrics.
- Portfolio committees are made up of members with a short-term focus who neglect investments in technology and platforms that can enable future product development.
- Portfolio committee members are static and are never evaluated for their contribution to the discussion but rather accepted based solely on seniority.
- A "go along to get along" attitude pervades the team, and no one wants to risk alienating another committee member.
- Often the easiest decision is no decision at all, and the committee ignores an overloaded pipeline.
Tackling the failures of a portfolio committee can be the most challenging step in optimizing a portfolio review process because it requires executives to acknowledge that they need help in combating their own biases during review sessions. This is where the value of adding an outsider comes in.
Some leading manufacturers have already begun to include a knowledgeable, objective outsider in the decision-making process. Additionally, this outside expert model is used extensively and with great success on corporate boards and legal preparation teams as a way to gain independent input and de-politicize interactions.
Bringing the Right Person to the Table
Because committee participation is a sensitive issue, there are a handful of leading practices to consider in bringing on knowledgeable outsiders and enabling them to be assets in the portfolio decision-making process. These fall into two general categories: the outsider's expertise and the outsider's established role on the committee.
Aspects of expertise to evaluate when considering an outsider include:
- Proven experience with leading portfolio and decision-making practices, including how other firms conduct business. This could be an executive from a tangential but not competing firm or a trusted advisor.
- Broad knowledge of the drivers of innovation in order to consider product, as well as technology and platform, investments.
- Confidence and boldness to challenge long-held assumptions or practices in the company.
Important factors in establishing a meaningful and effective committee role for the outsider are:
- Providing an equal seat at the table, so the outside expert is not overridden by internal factions.
- Ensuring that there are little or no personal ties to the portfolio committee members in order to maintain objectivity-in other words, no friends or family.
- Engendering trust from the portfolio committee to maintain the integrity of the process.
- Establishing accountability for the outside expert's independent decision. This includes the ability to replace experts who are not performing their duties, as well as the option to offer experts some compensation to align their interests.
Adding a knowledgeable outsider to the portfolio review process is not a substitute for making some of the necessary changes to the operating procedures and makeup of the portfolio review committee. However, adding a stranger to the mix to challenge the assumptions and "business as usual" mentality can turn an average-performing portfolio review committee into a dynamic and successful team.
Adam Elboim is a manager with management consulting firm Kalypso (www.kalypso.com), which specializes in innovation.