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How do you manage innovation product or project portfolios? So think about your stock portfolio,
right? In your stock portfolio or in your investment portfolio, I should say, you probably
have some percentage of it in stocks. So let's call that part of our portfolio, the stock
part of our portfolio, the blue part. You're gonna have some blue chip stocks and some
mutual funds. Let's say that's 50 percent of your portfolio.
Part of your portfolio is gonna have some money in cash or treasuries or bonds, things
that for sure are gonna be stable and we know what they're gonna pay. So let's say that's
15 percent of your portfolio. Some of your portfolio is probably gonna be in some technology
stocks or a startup you've invested in. Let's say that's 15 percent because it could pay
big but it could also, you could lose everything in that part of the portfolio. And let's say
part of your portfolio is you're giving money to your deadbeat brother Phil cause you promised
your mom you'd look out for him and it's really you're investing in that for your values.
You're really not looking for the kind of return that you want from it.
Well the same is true for our projects. We invest in our projects in order to back to
create a type of portfolio that produces the value or the outcome that we're looking for.
So when we think about this what I want you to think about is how portfolios are typically
biased and how we can correct it.
So usually at an organization, who gets the money first? Who gets the money first? The
people who have high risk, the people who have high returns, the people who have low
risk or the people who have low returns? So I want you to think about this for a minute.
The people who have low risk and high returns are going to be blue forms of innovation.
They're gonna pay relatively quickly. They're not radical. We know that we're gonna get
something out of this and so almost every portfolio we're gonna look at is gonna be
biased toward the blue form of value. They're gonna be shorter term and more incremental.
Now you can see where this might be a problem. You know, if you're a bank it's not a problem
at all. That's pretty good. But if you're, let's say you're making some kind of chemistry
that's very advanced and you're trying something really radical. That's probably not a good
idea for you. Or you're trying to do something where you're making the version of Cirque
du Soleil for an orchestra, it's probably not a very good idea for you. You probably
have to go out a little farther.
Well what's the problem with these green forms of innovation when we look at the portfolio?
The problem is these green forms of innovation actually pay out way over here. They have
great payouts but they have a lot of risk. Not just risk financially but technical risk.
Can you make it? Can you sell it? Can you support it? So what happens often in the portfolio
with green innovations is that they are derisked. The risk is taken out of them and they become
blue innovations.
So you can imagine what happens to the magnitude of the innovation? It goes down. So even though
it was originally a radical innovation by the time it gets funded it's not very radical
anymore. And a lot of you I imagine have an experience with having something that was
really a game changer but by the time it got funded it really wasn't.
Well, what happens to red innovations? Red innovations are often designed to protect
us from making huge mistakes. Think about quality and efficiency. You don't want that
thing to blow up. You want the space shuttle and the accounting firm and everything else
to work. So this is really to protect you but often in the portfolio these things are
seen as underperforming assets so they try and get more value out of them by making it
go faster and bigger and a lot of times with disastrous consequences, right?
Maybe that oil well could have been stopped had we paid a little more attention to this,
right? That's what happens in this position. So inadvertently we create risk exposure when
we put this into the portfolio.
Now finally what happens to training people and watching videos and getting smarter and
building our culture and competencies because this has a relatively high degree of risk
and relatively low performance it's going to be cut or eliminated. It's the first thing
that organizations get rid of. They get rid of training first, right?
So here's the challenge. Given that we need all four to really make innovation work and
given that portfolios are really designed to focus on the blue, what is it that we can
do to offset this? Well there's three things you can do. First of all and most importantly,
every point of view around innovation has a sugar daddy or sugar mama. Who is it in
your organization? Who do you need to talk to that represents the yellow point of view?
Is it your HR? VP of HR? Okay, go talk to him or her, right?
Who is it that represents the radical green? Is it new product development? Is it strategy?
Is it R&D? Go talk to him or her, right? Red. Who represents that point of view? Is it IT?
Is it operations? Go talk to them, right? Blue we don't think we need to talk to because
that's the dominant logic here. The dominant logic is blue.
So, one, find your sugar daddy or sugar mama. Two, always balance your portfolio like you
would your stocks. What percentage of your investments in innovation in terms of not
just money but your time, your attention are you giving to each of the quadrants? So maybe
the blue quadrant deserves 50 percent of your time but it doesn't deserve 100. So 15 percent
maybe goes to green so you earmark some money to more radical experiments or you earmark
some money to training people or you earmark some money to actually making sure that those
systems are turn-key.
So you balance your portfolio. Sometimes think about it like putting a picket fence around
that investment so that you've got all the types of investment. Finally and one of the
things that blues really understand is that you can do cost accounting where you take
all the costs of these other three and you assign them to blue. Because if you think
about it if you're gonna make money don't you have to have some experiments that you're
running and some R&D? Don't you have to train some people? Don't you have to have some systems
in place?
The problem is you haven't allocated those costs in the way in which the people who are
going to give you money are looking at it. Final thing about portfolio management. It's
all relative and what I mean by that is learn at your organization who gets money and who
doesn't and what the formula is. Learn who's on the committee and learn what other projects
are being put forward because it's not that your project has to be perfect, it just has
to be better than every else's.