advanced guides balancing your innovation...

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Advanced Guides Balancing Your Innovation Portfolio

Advanced GuidesHow to Balance Your Innovation Portfolio Using Matrices

Innovation Simplified | [email protected] | P 646-257-5737 | © Future Think LLC. All rights reserved 1

INTRODUCTION. Portfolio Balancing: Don’t Put All Your Eggs in One Basket

When Do You Make Portfolio Balancing Decisions? Qualitative vs. Quantitative Matrices: Which Type Is Right for Your Organization?

QUALITATIVE MATRICES

Markets vs. Capabilities Matrix Markets vs. Products Matrix Case Study: Whirlpool’s Model for Consumer-Driven Innovation

QUANTITATIVE MATRICES

Risk vs. Reward MatrixRisk vs. Reward Scorecard. How to Arrive at the Scores for Risk and Reward

Instructions. How to Customize and Use Your Scorecard

Using a Scorecard Guideline. Get Evaluators on the Same Page

Filled-In Example. See the Scorecard and Matrix in Action

Other Quantitative MatricesCost vs. BenefitCost vs. TimingEase vs. Attractiveness

Strength vs. Attractiveness

HOW TO BALANCE YOUR INNOVATION PORTFOLIO. Tips and Techniques

HOW TO SELECT A PORTFOLIO MATRIX. Choosing the Right Matrix for Your Organization

GROUP EXERCISE: BALANCING YOUR PORTFOLIO

What’s Inside…

The accompanying files (portfolio_matrices.ppt and matrix_scorecard.xls) contain customizable tools that you can use in your organization.



INTRODUCTIONPortfolio Balancing: Don’t Put All Your Eggs in One Basket

The leading innovators ensure that their portfolio of innovation projects is evenly balanced. They mix their long-term ideas with quick-wins. They take big risks with game-changing innovations and place safe bets with incremental improvements. This is a lesson for every organization, large or small. You cannot afford to think about innovation as just “one big idea” and put your business at risk. The other extreme—taking on small, minor projects and hoping for a big bang—is similarly unfruitful. The key is to blend these approaches with an organized method to manage your portfolio. Portfolio balancing is a critical tool in your innovation arsenal that ensures you’re not putting all your eggs in one basket.

Distribute your risk evenly. Portfolio matrices help analyze your innovation portfolio—the mix of new projects along with your existing development pipeline— by plotting each project on a 2x2 evaluation matrix. The matrix offers a bird’s-eye view to help see if you’re distributing your risk evenly across projects.

Make smart go/no-go decisions. Portfolio balancing is not merely a strategic exercise. It can help you make smarter decisions about which ideas to pursue, and which ones to kill. For example, if you already have 10 long-term or game-changing projects in your pipeline, you might want to avoid the eleventh. It might be prefera-ble to pick a short-term or “quick-win” project to optimize your overall risk.

Choose how you want to look at your portfolio. There are many variations of 2x2s (all of which we’ll show you in this tool). Each of them gives you a different way to look at your innovation portfolio. While some focus on the customer segments you serve (for example, are you under- or over-serving certain markets?), others let you see how much you’re stretching your current capabilities (for example, technology, R&D, staffing). The goal for your organization is to pick one or two matrices that can best help you analyze your innovation portfolio.

What this guide will do for you.Over the following pages, we’ll present a range of portfolio matrices and show you how to best use them. With useful examples, tips, and exercises, we’ll help you better balance your innovation portfolio.

The accompanying files (portfolio_matrices.ppt and matrix_scorecard.xls) contain the customizable tools that you can use in your organization. This document has all the instructions you need to use them effectively.



When Do You Make Portfolio Balancing Decisions?

There are many versions of portfolio matrices. We’ll discuss them in detail later so you can pick the one most suited to your organization. Overall, a matrix will help you plot new ideas along with your existing development pipeline to see how your basket of ideas are distributed across the 2x2 quadrants. A team assigned to evaluate your pipeline will use the results to determine if the new projects added help distribute your total innovation risk more evenly, keep you on track with innovation goals, and allow you to shift your portfolio to prevent investing too heavily in one area.

existing projects

new projects

raw ideas

projects

investment increasesnumber of ideas decreases

Kill raw ideas early. Early in your process, you’ll be able to make quick go/no-go decisions on ideas before you’ve invested too much time and money in them. A portfolio matrix can tell you if it’s worth the additional investment necessary to take the idea forward.

Evaluate works-in-progress. Later on in your process, projects have already had some analysis and investments behind them. A portfolio matrix can guide you to make go/no-go decisions before you make more

“serious” decisions (for example, making more investments, assigning greater resources, going to market).

Portfolio matrices can be used both early and later in your process:



Qualitative Quantitative

Example

Markets vs. Capabilities Risk vs. Reward

How are ideas mapped?

Absolute: within one of four quadrants Ideas are simply mapped to a specific quadrant (anywhere within one quadrant). Within a quadrant, there’s no relative difference between ideas.

It’s based on a high-level decision made by the evaluation team.

Relative: a specific location on the matrix Ideas are mapped to specific coordinates on the matrix.

The decision is based on the results of a scorecard. Each axis of the matrix measures a few important criteria and an idea is scored on these criteria. The idea is then mapped on the matrix based on the scores.

Choose this type of matrix if...

You have fewer ideas/projects in your innovation pipeline.

Your organization’s tolerance for risk is relatively high.

Your evaluation team is comfortable making decisions based on high-level and qualitative information.

You have many projects in your pipeline and it is important to weigh the relative advantages/disadvantages of each.

Your organization’s tolerance for risk is relatively low.

Your evaluation team is more comfortable with making fact-based, data-driven, and quantitative decisions.

Matrices explained in this tool:

Markets vs. CapabilitiesMarkets vs. Products

Risk vs. RewardCost vs. BenefitCost vs. Timing

Ease vs. AttractivenessStrength vs. Attractiveness

Qualitative vs. Quantitative MatricesWhich Type Is Right for Your Organization?

Markets vs. Capabilities

Markets

Capabilities new

new

existing

Risk vs. Reward

Risk

Reward0

500

500

There are two basic types of portfolio matrices: qualitative and quantitative. Here, we show you the differences between the two:



QUALITATIVE MATRICES


Markets

Capabilities new

new

existing

Markets vs. Products

Markets

Products new

new

existing

In this section, we discuss how you can balance your portfolio using qualitative matrices. Ideas can fall in one of four quadrants (absolute plotting, not relative). We’ll show you two different types:

1. Markets vs. Capabilities

2. Markets vs. Products (or Markets vs. Services)



1. Markets vs. Capabilities Matrix

Markets (the external lens): Shows if your ideas are under- or over-serving some customer markets. Here, markets are defined as either customer segments (e.g., 18–24, women, small businesses) or regions (e.g., North America, Asia, Midwest).

Capabilities (the internal lens): Shows how you’re utilizing your resources to address these markets. Capabilities are defined as technology, R&D, staffing, etc.


Markets

Capabilities new

new

existing

market new terrain

market

Illustration: How Apple might use this matrix

For illustrative purposes, let’s see how Apple might use this matrix. The orange dots represent its current development projects. The company is considering four new projects, represented by the red dots. See the reasoning behind why Apple mapped the new projects in this manner:


Markets

Capabilities new

new

existing

Market expansion. These ideas help you grow into new markets using your current capabilities. Apple’s iPod Touch was a new product (since it offered very different functionality) but it was based on the capabilities used while developing the original iPod.

New terrain. These ideas are helping you uncover fresh and new territory. Apple’s idea for iTunes was based on entirely new markets (people who would never buy an Apple computer) and new capabilities (music downloads and digital rights management vs. computer hardware/software). The iPhone would also fall into this quadrant.

Market penetration. These ideas help you go deeper within your current customer segments with new capabilities. Apple’s idea for the “Mighty Mouse” (a mouse designed by Apple) would complement its current laptops and desktops.

Familiar turf. These are ideas that address your current markets using your current capabilities. These probably are your low-risk ideas since you’re playing in familiar turf. Apple’s idea for a new version of the iMac is based on improvements to its current product line.

The Markets vs. Capabilities matrix helps you analyze your innovation portfolio from an external and internal lens. This matrix suits those organizations that have limited resources and want to use them in the most efficient manner.

familiar



2. Markets vs. Products Matrix

Markets: Shows if you’re under- or over- serving some customer markets. As in the previous example, this means either customer segments (e.g., 18–24, women, small businesses) or regions (e.g., North America, Asia, Mid-West).

Products: Shows how your ideas are based on current products (enhancements or improvements) or entirely new products.

How a retail bank might use this matrix

For illustrative purposes, let’s see how a retail bank, say Wachovia or Barclays, would use this matrix. Again, the orange dots represent current development projects and new projects are represented by red dots.


Markets

Products new

new

existing


Markets

Products new

new

existing

product improvement

product replacement

Market expansion. These ideas help you grow into new markets without changing your current suite of products (e.g., adding on 20 new branch locations).

Transformation. These ideas help you enter new customer segments with entirely new products (e.g., offering an insurance product or selling a line of accessories).

Product complement/replacement. These ideas either complement (add-ons, accessories) or replace (new versions) your current products. This helps you get deeper within your current customer segments (e.g., a credit card that is offered to existing checking account customers).

The Markets vs. Products (or services) matrix is more outwardly focused than the Markets vs. Capabilities matrix. The Markets vs. Products matrix suits those organizations that want to concentrate on how they’re growing their markets (and aren’t overly concerned by the resources required to reach these markets). The matrix can also be used by service organizations. For convenience, when we use the word “products” we mean “products or services.”

market expansion



Case Study: Whirlpool’s Model for Consumer-Driven Innovation

Markets

Products new

new

existing

MARKETABLE INNOVATION

Unique, innovative features are designed to update existing products and present new product attributes to the marketplace.

Design Your Own Dishwasher: A consumer customizable dishwasher

NEW BUSINESS

Opportunities are developed to create new customers and business models.

Brand Licensing: Extend the KitchenAid brand’s reach through gadgets, bakeware, cookware, linens, etc.

PRODUCT REPLACEMENT

Existing product lines are replaced with updated innovation based on key learnings.

The Jobim: A range with improved ovens and burners, better power, and more conveniences

NEW PRODUCT

Completely new product lines are created to solve previously unmet consumer needs.

Drawer Dishwasher: Unique dishwasher in single or double drawers

Whirlpool uses a variation of the Markets vs. Products matrix to balance its innovation portfolio. See how the company has crafted finer nuances across the four quadrants:

In the next section, we discuss quantitative matrices. As you see how these matrices work, you’ll begin to understand which ones might be right for your organization.



QUANTITATIVE MATRICES

Cost vs. Benefit

Cost

Benefit0

500

500


Strength

Attractiveness0

500

500

In this section, we’ll discuss quantitative matrices. Here, ideas are mapped to a specific point in the matrix (rather than simply on a quadrant) based on a specific score you associate with the idea. Where you place the idea is based on the results of a scorecard. Each axis of the matrix is broken down into a few important criteria and an idea is scored upon these criteria. The idea is then mapped on the matrix based on the scores. We’ll show you five different types:

1. Risk vs. Reward

2. Cost vs. Benefit

3. Cost vs. Timing

4. Ease vs. Attractiveness

5. Strength vs. Attractiveness

Risk vs. Reward

Risk

Reward0

500

500

Ease vs. Attractiveness

Ease

Attractiveness0

500

500

Cost vs. Timing

Cost

Timing0

500

500

On the following pages, we deep dive into the Risk vs Reward matrrix. After looking at this particular matrix in detail, we’ll look at the other matrices.



1. Risk vs. Reward Matrix

Risk vs. Reward

Risk

Reward0

500

500

Risk (Y Axis): The risk (business and financial) your organization will assume if you implement the idea.

Reward (X Axis): The potential reward (business and financial) you might reap if the idea is implemented successfully.

white elephants

oysters

bread and butter

pearls

How Apple might use this matrix

For illustration purposes, let’s see how Apple would use this matrix. The orange dots represent its current development projects. The company is considering four new projects, represented by the red dots. See the reasoning behind why Apple mapped the new projects in this manner:

Risk vs. Reward

Risk

Reward0

500

500

White Elephants. These are the ideas for which the risk outweighs the reward. You must decide:Don’t-Do. Shelve these ideas since the amount of risk is not worth the level of reward.Should-Do? Sometimes, there might be a compelling reason to implement these ideas—for example, to gain competitive parity.

Oysters. Some of your ideas are the true breakthroughs—they involve a high amount of risk, but the potential reward might be worth all the trouble. For example, iTunes might have mapped on this quadrant.

Pearls. These are your “must-do” ideas. They offer a high level of reward for a little amount of risk. For example, Apple’s foray into the iPod Nano and Shuffle implied a low level of risk for large rewards. The company had already built a strong need with the original iPods and these variants would target new users who couldn’t afford the more expensive original.

A common version of the quantitative matrix is the Risk vs. Reward matrix. Here, you analyze your ideas based on two major factors:



Risk vs. Reward ScorecardHow to Arrive at the Scores for Risk and Reward

Risk Vs. Reward Scorecard

Project Lead:

Score(1 LOW–5 HIGH) Weight Factor Total Notes/Comments

1 20 0

2 25 0

3 25 0

4 30 0

100 0 Total Risk Score


1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0

100 0 Total Reward Score

Decision (Select one option): GO: Proceed

to next stage

STOP: File idea in pipeline

HOLD: Review again at next meeting

Next Steps:

Scored By:Signature:Date:

Potential additional revenue in XX years

Idea #:

Idea Name:

Date Submitted:

Level of competitive uniqueness and differentiation (immediately after launch)

Level of sustainable competitive advantage (XX years after launch)

Potential for PR, cross-industry and customer "buzz"

Total Weight Factor = 100

Risk

Time needed to develop idea to be ready for market launch


Reward

Level of staffing required to implement the idea

Degree of complexity (operations, technology) to implement

Level of capital investment required for implementation (development and deployment costs)

Level to which brand positioning is supported/expanded

Level of customer need met by this idea (importance of need, and how satisfactorily the idea meets the need)

Level of market attractiveness (potential size of the pie)

© 2005–11. Future Think LLC. 380 Lexington Ave, Suite 1742, New York, NY 10168 www.futurethink.com

In order to plot ideas on this matrix, you need a score for each of the axes (a “risk score” as well as a “reward score”). Here, we provide a scorecard that you can use to get started. Each idea will be evaluated for its risk and reward values using this scorecard.

In the scorecard, risk and reward are defined by certain criteria. You can use the accompanying scorecard (see matrix_scorecard.xls) as a jump-start. After you’ve customized it for your organization, your evaluation team will use this scorecard to score each idea.

Use the accompanying file (matrix_scorecard.xls) to customize the scorecard for your organization.



Risk vs. Reward Scorecard (continued)How to Arrive at the Scores for Risk and Reward


Project Lead:


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:



Idea #:

Idea Name:

Date Submitted:





Risk



Reward








Break risk and reward into clear criteria. It’s important that your organization creates a clear definition of what you mean by risk and reward. The scorecard we’ve included in this tool uses the following criteria. You can fine-tune, add, or delete the criteria that are relevant for your organization:

Risk criteria (financial and business risk)1. Time needed to develop an idea to be ready for market launch2. Level of capital investment required for implementation (development

and deployment costs)3. Level of staffing required to implement the idea4. Degree of complexity (operations, technology) to implement the idea

Reward criteria (financial and business reward)1. Potential additional revenue in XX years2. Level to which brand positioning is supported/expanded3. Level of customer need met by this idea (importance of need, and

how well the idea meets the need)4. Level of market attractiveness (potential size of the pie)5. Level of competitive uniqueness and differentiation (immediately

after launch)6. Potential for PR, cross-industry and customer “buzz”7. Level of sustainable competitive advantage (XX years after launch)




Project Lead:


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:



Idea #:

Idea Name:

Date Submitted:





Risk



Reward








InstructionsHow to Customize and Use Your Scorecard

1. Frame your criteria carefully. Your criteria should be descriptive enough so that they do not raise any questions among your evaluators. For example, capital investment will certainly be one of your risk criteria. In the scorecard, we’ve described it as “Level of capital investment required for implementation (development and deployment costs).”

2. Use weight factors. Weight factors help to fine-tune your scorecard and indicate some criteria as “more important” than others:

Distribute 100 index points across the criteria. The more important a criterion, the more weight it should receive. For example, if “additional revenue” is more important than “PR buzz,” you should assign it a higher weight factor.

Calculate a weighted score. The weighted score for each criteria = Weight Factor x Score. This formula is built into the companion Excel worksheet.

Round off your weight factors. Weight factors need not be exact. For example, a weight factor of 23 vs. 28 doesn’t make a significant difference in the final score. So, assign them in units of five or 10. Just remember that the weight factors reflect the relative importance of each criterion.

Weights or no weights? If you’re just beginning your innovation efforts, consider not including weight factors in your scorecard. You can add it at a later time as your evaluation program evolves and your team gets a better understanding of innovation.



Instructions (continued)How to Customize and Use Your Scorecard

3. Track the idea. Each idea in your pipeline should get a unique tracking number (generated by an idea pipeline).

4. Indicate who’s in charge. If an idea has a specific owner, indicate that resource on the scorecard.

5. Use the Scorecard Guideline. To ensure that your organization has a common understanding for scoring, use the “scorecard guideline” worksheet in the Excel file. It explains what a score of 3 vs. 5 means. Look at the next two pages for more information on the scorecard guideline.

6. Encourage notes. Evaluators can document questions and comments when they’re scoring ideas.

7. Make a decision. It’s important to make a decision about the idea you’re evaluating. There are three options:

GO: Move idea to the next phase.

HOLD: Keep idea on a back-burner until next review.

STOP: Stop work on the project. It will not be reviewed again.

8. Identify clear next steps. If an idea is given a “GO,” a team needs specific direction on how to take it forward. Document your next steps on the same scorecard.


Project Lead:


1 20 0

2 25 0

3 25 0

4 30 0



1 10 0

2 15 0

3 10 0

4 15 0

5 15 0

6 15 0

7 20 0



to next stage



Next Steps:



Idea #:

Idea Name:

Date Submitted:





Risk



Reward










Using a Scorecard GuidelineGet Evaluators on the Same Page

Risk Vs. Reward Scorecard GuidelinesSCORE 1–2

(LOW)SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 X Months XX Months XXX Months

2 $ $$ $$$

3 $ $$ $$$

4 Low: very easy to implement

Moderately challenging: potential roadblocks exist Significant challenge

SCORE 1–2(LOW)

SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 $ $$ $$$

2 Little to do with current brand positioning

Supports our existing brand positioning

Potentially expands our brand positioning in new territories

3

Addresses an unimportant customer

needMeets the need very

unsatisfactorily

Addresses a moderately important customer needDoes an average job of

meeting the need

Addresses an extremely critical customer need

Meets the need in a holistic and complete manner

4 $ $$ $$$

5 Easy to replicate by competition

Moderately difficult to replicate by competition

Very difficult to replicate by competition

6 Low: will be seen as "business as usual"

Moderate: Will be seen as news within the industry

High: Will create news in general interest and across industries

7Low potential for future

extensions/enhancements to sustain advantage

Moderate potential for future extensions/enhancements to

sustain advantage

High potential for future extensions/enhancements to sustain

advantage







Level of complexity in order to implement

Reward Criteria

Risk Criteria





© 2005–10. Future Think LLC. 242 West 30th Street, New York, NY 10001. www.getfuturethink.com

We’ve included a scorecard guideline that you can customize and distribute within your organization (matrix_scorecard.xls).

A scorecard can make evaluation of ideas more objective; however, the reality is, there’s still a certain level of subjectivity to the scores.

Every person on your evaluation team will have a different opinion on what a score of “3” or “5” means, say, for a criterion like “ Level of customer need met by this idea.”

We highly recommend that you use a scorecard guideline—it will help to get everyone on the same page and to create more consistency in your scoring.



Using a Scorecard Guideline (continued)Get Evaluators on the Same Page

Risk Vs. Reward Scorecard GuidelinesSCORE 1–2

(LOW)SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 X Months XX Months XXX Months

2 $ $$ $$$

3 $ $$ $$$

4 Low: very easy to implement

Moderately challenging: potential roadblocks exist Significant challenge

SCORE 1–2(LOW)

SCORE 2–4 (MEDIUM)

SCORE 4–5(HIGH)

1 $ $$ $$$

2 Little to do with current brand positioning

Supports our existing brand positioning

Potentially expands our brand positioning in new territories

3

Addresses an unimportant customer

needMeets the need very

unsatisfactorily

Addresses a moderately important customer needDoes an average job of

meeting the need

Addresses an extremely critical customer need

Meets the need in a holistic and complete manner

4 $ $$ $$$

5 Easy to replicate by competition

Moderately difficult to replicate by competition

Very difficult to replicate by competition

6 Low: will be seen as "business as usual"

Moderate: Will be seen as news within the industry

High: Will create news in general interest and across industries

7Low potential for future

extensions/enhancements to sustain advantage

Moderate potential for future extensions/enhancements to

sustain advantage

High potential for future extensions/enhancements to sustain

advantage







Level of complexity in order to implement

Reward Criteria

Risk Criteria





© 2005–10. Future Think LLC. 242 West 30th Street, New York, NY 10001. www.getfuturethink.com

1. Define guidelines for all criteria. Be as descriptive as you can with each criterion. We’ve included guidelines for each under “Risk Criteria” and “Reward Criteria”.

2. Develop a range of scores. You don’t need to define a guideline for each score. Instead, use a low/medium/high score-range for each criterion, and define a guideline for the range. We recommend the following score-range:

LOW: Scores 1 to 2MEDIUM: Scores 2 to 4HIGH: Scores 4 to 5

3. Qualitative vs. Quantitative criteria. Some criteria are qualitative; you should be vivid and descriptive with your guidelines. Some examples include: level of complexity, level of competitive advantage, and potential for PR.

For other criteria, you can define specific numbers for the guidelines. “Potential additional revenue in XX years” can have actual $$ figures based on your organization’s needs. For example, you can define the guidelines as:

LOW (scores 1–2): Up to $50 million in 2 yearsMEDIUM (scores 2–4): $50–$100 million in 2 yearsHIGH (scores 4–5): $100 million+ in 2 years.

Potential quantitative criteria are indicated with $$ symbols.

4. Describe a clear demarcation between ranges. Describe in clear terms the difference between the low, medium, and high ranges. For example, for the “Level of competitive uniqueness and differentiation” criterion, the descriptors we recommend are:

LOW: Easy to replicate by competitionMEDIUM: Moderately difficult to replicateHIGH: Very difficult to replicate



Filled-In ExampleSee the Scorecard and Matrix in Action

Risk vs. Reward

Risk

Reward0

500

500

#502

In this example, we show how a “flexible (rubber-based) credit card” idea was scored and then mapped on the matrix. This organization decided to shelve the idea because they already had too many “oysters” in their portfolio.



Other Quantitative Matrices

Cost vs. Benefit

Cost

Benefit0

500

500


Strength

Attractiveness0

500

500


Ease

Attractiveness0

500

500

Cost vs. Timing

Cost

Timing0

500

500

The other quantitative matrices work essentially in the same manner as the Risk vs. Reward matrix. The difference comes in the way you define the criteria for each of the axes. In this section, we discuss the following matrices:

2. Cost vs. Benefit

3. Cost vs. Timing





SCORECARD CRITERIA

2. Cost vs. Benefit

Cost vs. Benefit

Cost

Benefit0

500

500

Axis: Possible Criteria:Cost > Level of capital investment required for implementation

(development and deployment costs)

> Level of staffing required to implement the idea (in terms of $$)

Benefit > Potential additional revenue in XX years

> Level to which brand positioning is supported/expanded

> Level of customer need met by this idea (importance of need, and how satisfactorily the idea meets the need)

> Level of market attractiveness (potential size of the pie)

> Level of competitive uniqueness and differentiation (immediately after launch)

> Potential for PR, cross-industry and customer “buzz”

> Level of sustainable competitive advantage (XX years after launch)

INTERPRETING THE FOUR QUADRANTS

Don’t-Do’s. These are the ideas for which the costs outweigh the benefits. Generally, you will shelve these ideas since they are not worth implementing. Occasionally, there might be a compelling reason for implementing one of these ideas.

Groundbreaker? Some of your ideas could be the true breakthroughs—they involve a high amount of costs, but the potential benefit might be worth all the trouble.

Cost

Benefit0 500

500

The Cost vs. Benefit Matrix is a simplified version of the Risk vs. Reward matrix. In this matrix, “cost” is defined in a narrow fashion—just financial ($$) costs required to implement the idea. This is a useful matrix for financially conservative organizations.



SCORECARD CRITERIA

3. Cost vs. Timing

Cost vs. Timing

Cost

Timing0

500

500

Axis: Possible Criteria:Cost > Level of capital investment required for implementation

(development and deployment costs)


Timing > Development time required for successful implementation (for activities prior to launch)

> Deployment time required to meet revenue goals (for post-launch activities: distribution, marketing, sales)


Intensives. Some of your ideas will require intense investment in a short period of time. Often, you’ll want to shelve these ideas since they are not worth the costs, though there could be a compelling reason to pursue one.

Long-Term. Some of your ideas are the true breakthroughs—they involve a high amount of costs, but the potential benefit might be worth all the trouble.

Cost

Timing0 500

500

The Cost vs. Timing matrix helps you make go/no-go decisions based on how long your organization thinks an idea will be ready for market versus the investments required to implement. This is especially useful if your organization has extremely limited resources to invest in innovation, and where speed is of the essence.



SCORECARD CRITERIA



Ease

Attractiveness0

500

500

Possible Criteria:Ease > Degree of complexity (operations, technology) to

implement

> Level of capabilities required to implement (existing capabilities vs. new capabilities)

> Level of capital investment required for implementation (development and deployment costs)


Attractiveness > Potential size of the pie

> Potential market share (your organization’s share of the pie)

> Potential additional revenue in XX years

> Level of market newness (does the idea target an existing market, a relatively new market, or a completely new target market?)

> Level of competitive uniqueness and differentiation (immediately after launch)



Maintenance. These are easy-to-implement ideas that don’t really offer high rewards. They could be minor upgrades or enhancements to your current offerings.

Big Winners. These are your “must-do” ideas. They’re extremely possible, and offer high market attractiveness.

Dogs. These are your don’t-do ideas. With an unattractive market and low feasibility, there’s no compelling reason to implement these ideas.

Long Shots. These are ideas that have a small chance of getting implemented. However, if you manage to pull them off, they offer high rewards. Consider these ideas carefully before shelving them.

Ease

Attractiveness0 500

500

The Ease vs. Attractiveness matrix will help you weigh the complexity of implementation (ease) against the potential of the market (market attractiveness) for any particular idea. This matrix will suit your organization if technical feasibility (e.g., technology, R&D) is a primary concern.



SCORECARD CRITERIA



Strength

Attractiveness0

500

500

Axis: Possible Criteria:Strength > Level of competitive uniqueness and differentiation

(immediately after launch)


Attractiveness > Potential size of the pie

> Potential market share (your organization’s share of the pie)

> Potential additional revenue in XX years

> Level of market newness (does the idea target an existing market, a relatively new market, or a completely new target market?)

INTERPRETING THE FOUR QUADRANTSLeadership. These ideas give you high competitive advantage in a market where the rewards might not be that attractive. This is often a leadership strategy where it’s important that your organization has a share in a symbolic market.

Must-Do. These are your “must-do” ideas. They offer competitive strength in an extremely attractive market.

Strength

Attractiveness0 500

500

The Strength vs. Attractiveness matrix looks at two factors to judge an idea: the amount of competitive advantage that it can offer vs. the potential of the market. It is especially useful for those organizations that experience extremely high levels of competitive activity, or where there are low barriers to entry (for example, technology, packaged goods).



Pick one or two matrices. If you’re just beginning to use these tools, we

recommend that you use one portfolio matrix to make go/no-go decisions based on a consistent framework. As your innovation efforts evolve (and your team begins to get comfortable with the idea of portfolio-balancing), you can begin to use two matrices. Two matrices give you the opportunity to analyze your innovation portfolio using two very different lenses. For tips on selecting a portfolio matrix,

look at the next chapter of this tool.

Start with a baseline and reach for a goal. No matter which matrix you pick, ensure that you know where your portfolio stands. It’s also important to aim for a goal (where you want your portfolio to be). This helps you track if and how you are moving towards a goal. See figure below for a way to

HOW TO BALANCE YOUR INNOVATION PORTFOLIOTips and Techniques

1 2

CURRENT:

10% 5%

80% 5%

GOAL:

20% 30%

30% 20%

Portfolio balancing is an important activity that your organization will undertake because it shapes how you want to innovate. Here are some useful tips to help you balance your innovation portfolio in an effective manner.

Remember to use these tips as simple rules-of-thumb. The specific way you use each matrix will depend on your needs.



Answer “relative” questions. Remember, portfolio-balancing helps you look

holistically at your basket of innovation projects. When you’re evaluating new ideas to add to your existing pipeline, they help answer some of these relative questions.

> What’s the impact of adding this new idea to our portfolio?

> Does our portfolio become too concentrated in one area?

> Does the addition of this new idea strain resources in a particular area?

> Are we under- or over-serving a quadrant by adding this new idea?

Spread ideas across your matrix. The goal of portfolio balancing is to make

sure that you have ideas that are represented across the matrix. This helps you balance breakthrough ideas with incremental ones. With a well-balanced portfolio, you can make smarter decisions about taking on new ideas. Of course, some matrices offer automatic no-go decisions (for example, the “Dogs” quadrant in the “Ease vs. Attractiveness” matrix). Even so, before you make a go/no-go decision, consider the decision carefully.

Maintain the “concentration” of ideas across the matrix.

It’s also important to look at where your ideas are concentrated in the matrix. In order to optimize your risk, you need to have a higher number of ideas on the lower-left section of your matrix (the area of the matrix that represents a lower risk). For most matrices, the number of ideas should decrease as you move towards the upper-right corner (the high risk and high reward ideas). This rule does not hold true for the “Ease vs. Attractiveness” and “Strength vs. Attractiveness” matrices. In these matrices, there are certain quadrants that you will definitely want to avoid.

HOW TO BALANCE YOUR INNOVATION PORTFOLIO (continued)Tips and Techniques

4 53 Cost vs. Timing

Cost

Timing new

new

existing

high risk

medium risk

low risk



Add dimension to your matrix. You can use colors, shapes, and sizes

to distinguish between regions, business divisions, and markets in the matrix. A shape and color-coded matrix can become the language of innovation in your organization. Note that the companies mentioned here use sophisticated software to track their innovation portfolios. Here are some examples of how organizations add dimension to

their portfolio matrices:

> Some organizations use the size of the circles on a matrix to denote the amount of resources that have been spent on a project. They know that the total area of circles in their matrix cannot go beyond a certain threshold.

> 3M uses squares to represent well-defined projects, and ellipses and circles to represent increasingly unclear, uncertain projects.

> Proctor & Gamble uses CAD software to create 3-D representations of its new product portfolio. Diagrams can be rotated in space and depict project features, and details of a project are available by clicking on a project bubble.

> Some companies use timing as a dimension. Red circles indicate

“red-hot” projects that are on the verge of launch while blue circles indicate “early” projects.


6

Cost vs. Benefit

Cost

Benefit0

500

500


Markets

Products new

new

existing

If you’re just starting out, use the accompanying PowerPoint file (portfolio_matrices.ppt). We’ve included different icons that you can use to represent dimensionality in your organization.



Ideas will shift with every evaluation. It’s not enough to plot an idea once on a

matrix. An idea will certainly build and evolve (and even transform) as a team works on it. You should analyze your pipeline on a regular basis (perhaps quarterly) to see where existing ideas have shifted, and to evaluate new ideas.

Drive idea generation in a proactive way. Since you’ll be evaluating your portfolio on a

continuous basis, it helps you see “holes” in your basket of ideas. This can help you drive idea-generation in specific directions to fill those holes. For example, if you use the “Markets vs. Capabilities” matrix, you may find that your portfolio is skewed too much towards the “Familiar Turf” quadrant with very few “New Terrain” ideas. You can challenge your business teams to generate ideas that target new customer markets using capabilities that you do not currently possess.


7 8Ease vs. Attractiveness

Ease

Attractiveness0

500

500


Markets

Capabilities new

new

existing

market expansion new terrain

familiar turf market penetration



HOW TO SELECT A PORTFOLIO MATRIXLooking to pick the right portfolio matrix for your organization? This section provides a one-page decision tree to help you choose the right matrix.

Though by no means definitive, you’ll get a head start on narrowing your choice.

What is the decision-making style of your evaluation team?

We are more comfortable making decisions based on high-level, qualitative information.

We are more comfortable with making fact-based, data-driven, and quantitative decisions.

What is your primary concern regarding innovation?

What type of organization are you andwhat are your primary concerns?

We have limited resources.

We want to use them in the most efficient manner possible.

We want to grow our markets.

Our primary focus is on market growth, rather than the resources we need to make it happen.

We have a holistic view of risk and reward.

We want to look at both financial and business risk and reward.

We are financially conservative.

We are primarily concerned with financial risk, in dollar terms.

We are financially conservative and time-to-market is critical for us.

We want to look at financial risk and timing.

Most of our offerings are either technology or R&D-based.

We are most concerned with technological feasibility.

Our industry has low barriers to entry (competitors can easily repli-cate offerings.)

We need to look at competitive advantage.

Cost vs. Benefit

Cost

Benefit0

500

500


Strength

Attractiveness0

500

500

Risk vs. Reward

Risk

Reward0

500

500


Ease

Attractiveness0

500

500

Cost vs. Timing

Cost

Timing0

500

500


Markets

Capabilities new

new

existing


Markets

Products new

new

existing

Markets vs. Markets vs. Products Risk vs. Reward Cost vs. Benefit Cost vs. Timing Ease vs. Strength vs.



GROUP EXERCISE: BALANCING YOUR PORTFOLIOWe understand that portfolio-balancing decisions are not

made by you alone. You also need to get your team on the

same page when it comes to your portfolio.

The exercise in the final section of the Guide can help you

make better portfolio-balancing decisions with your team. Use

this exercise when you want stakeholders to understand how

innovation portfolios must balance breakthrough ideas with

quick-wins. It works best when innovation efforts have been

haphazard or there’s been little strategy to think holistically

about your portfolio of innovation projects.

On the following pages, we provide you with facilitation

guidelines on how to run the exercise, and worksheets to use

during the meeting.



Facilitation Guide

Relevant for senior management and for teams directly responsible for setting innovation guidance.

Group: This exercise should be done in teams of three to four people.

Select recent innovations to map: Select three to four ideas to place on the portfolio matrix. Make sure everyone is familiar with these ideas so that they will spend their time plotting the ideas vs. learning about them. Choose a variety of ideas to get the best results.

SUGGESTED AUDIENCE:

SET-UP:

HOW IT WORKS: 1. Designate teams: Once all attendees are in the room, split them into their assigned teams.

2. Assign a team leader: Ask each team to assign a “team leader” who will write the team’s thoughts on the worksheet. It’s best to have someone with the best handwriting as the team leader.

3. Hand out worksheets: Each person should have a worksheet for review.

4. Step 1: Pass the “Sample Matrix: Whirlpool” to all participants. Ask them to review the matrix. Stress how innovative companies spread their risk across “big” and “small” projects.

5. Step 2: Pass the “Mapping Recent Innovations” worksheets to all participants. You’ll also hand them a list of three to four recent projects that the teams are working on. Their goal is to map these projects on the matrix provided.

6. Step 3: Hand out the “Setting Goals” worksheets to all participants. Their goal is to estimate what percentage of their projects fall in each matrix. More importantly, ask them to set percentage goals in the future.

7. Group Discussion: Facilitate a group discussion at the end of each step using the questions provided on the next page.



Step 1:1. As you can see, innovators have projects running DELIBERATELY across all quadrants of the matrix. Which

projects are high-risk? Which are low-risk?

2. Why do you think they have projects in all quadrants? If they have the money, shouldn’t they just focus on the high-risk quadrants?

Step 2:1. Did we all have different opinions as to where projects should map on the matrix? Why?

2. Do you feel like the matrix you’ve plotted is unbalanced or too concentrated in one quadrant? Why?

3. If you feel like our portfolio is unbalanced, what is the reason for this? Are we too risk-averse? Or are we taking too many risks and not enough safe bets?

4. If we decided to formalize portfolio balancing in our organization, who should be involved? When should we use the tool to ensure we’re not getting ahead of ourselves or wasting resources?

5. Do you think a portfolio matrix is a good decision-making tool? Why?

Step 3:1. Did we all have different opinions on current vs. future goals for how our portfolio will look? Why?

2. What do we need to do in order to meet our future goals? What specific commitments should we be making?

3. Did this exercise make you see specific product or market opportunities for our organization?

HOW IT WORKS (cont’d)- GROUP DISCUSSION:

RECOMMENDED TIMING:

SUGGESTED MATERIALS:

Facilitation Guide (continued)

Total: 95 minutes (1 hour 35 minutes)

Introduction: 5 minutes; Step 1: 10 minutes; Group discussion: 20 minutes; Step 2: 10 minutes; Group discussion: 20 minutes; Step 3: 10 minutes; Group discussion: 20 minutes

1. Exercise worksheets

2. List of three to four recent innovations/current projects in your organization

3. Whiteboard or flipcharts to note discussion after evaluation is complete

4. Colored markers/pens



Balancing Your Portfolio: Step 1Innovation projects are what companies bank on to keep them ahead in the marketplace, while business-as-usual projects keep them at par. Leading innovators ensure that their portfolio of projects is evenly balanced. They mix their long-term ideas with quick wins. They take big risks with game-changing innovations and place safe bets with incremental improvements. No company can afford to think about innovation as just “one big idea” and put the business at risk. The other extreme—taking on small, minor projects and hoping for a big bang—is similarly unfruitful.

Markets

Products new

new

existing

MARKETABLE INNOVATION

Unique, innovative features are designed to update existing products and present new product attributes to the marketplace.Design Your Own Dishwasher: A consumer customizable dishwasher

NEW BUSINESS

Opportunities are developed to create new customers and business models.

Brand Licensing: Extend the KitchenAid brand’s reach through gadgets, bakeware, cookware, linens, etc.

PRODUCT REPLACEMENT

Existing product lines are replaced with updated innovation based on key learnings.

The Jobim: A range with improved ovens and burners, better power, and more conveniences

NEW PRODUCT

Completely new product lines are created to solve previously unmet consumer needs.

Drawer Dishwasher: Unique dishwasher in single or double drawers

Sample Matrix: Whirlpool


Look at the Markets vs. Products matrix example provided here for Whirlpool. The lower left is most “comfortable”—existing products for existing markets. The upper right is the most risky—new products for new markets. The other two quadrants fall in between. Innovative companies always have a mix, spreading their risk across a select group of projects. What can you learn from this?

notes



Mapping Recent Innovations Take a quick survey of your own projects and recent “innovations” to get a picture of your business-as-usual vs. innovative activity.

Map the three to four recent projects given to you on the matrix below:

Markets

Products new

new

existing

notes

Balancing Your Portfolio: Step 2



Setting Goals Work with your group to set goals on how you want your projects spread across the matrix.

1. CURRENT %: What do you think your company’s current percentage of innovation investment ($, people) across all four quadrants has been over the past few years?

2. FUTURE %: Where do you think it should be?

Markets

Products new

new

existing

Current:_________%

Future:__________%

Current:_________%

Future:__________%

Current:_________%

Future:__________%

Current:_________%

Future:__________%

Balancing Your Portfolio: Step 3

notes

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