Comments for Building a consistent and balanced innovation portfolio

PONCELET Antoine, JONET Claire, GOFFIN Clément, DEMOULIN Sylvain et DEHON Benjamin

Paulson, A. S., Gina, C. O., & Robeson, D. (2007). EVALUATING RADICAL INNOVATION PORTFOLIOS. Research Technology Management, 50(5), 17-24,29.

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…
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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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