The Purpose and Method of the Innovation Portfolio
“I have missed more than 9,000 shots in my career.I have lost almost 300 games.On 26 occasions I have been entrustedto take the game winning shot ...and missed.And I have failed over and over and over again in my life.And that is why I succeed.”
Michael Jordan, in a commercial for Nike
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The purpose of the innovation portfolio is to increase the likelihood of success at innovation, whose purpose in turn is to reduce the inevitable risks related to being in business in the first place, which is the problem of change.The concept of a portfolio is a proven method of managing assets, for just as investors in all types of assets create portfolios to help them attain optimal returns while choosing the level of risk that is most appropriate for them, you’ll do the same for the innovation projects you’re working on.The method of innovation portfolio management is to create a learning process that balances failures and successes at the small scale on the way to ultimate successes at the large scale.Why failure and success? Because some failures are essential steps on the learning pathway that leads to ultimate success, as the comment from Michael Jordan that begins this post so gracefully illustrates, while others appear to be just dead ends that resulted from bad luck, bad ideas, or perhaps bad judgment. The thing about innovation is that appearances are deceiving, because the dead ends, like Jordan’s missed shots and lost games, are inevitable, necessary, and in fact valuable. Even these failures are learning opportunities. Given proper management of the entire process, there are no dead ends in the innovation process; it’s all learning.But that’s not stating the situation clearly enough. Failure is not just something you tolerate, it’s an absolute requirement. Because to succeed at innovation you must fail.Why do I say “must?” Let me explain.You have a set of existing products and services from which you earn revenues and profits. You know that at some future date, perhaps tomorrow or perhaps in years to come, those products and services will become obsolete because you or a competitor will introduce new products and services that deliver better value. They will cost less or perform better, or both.The problem with this scenario is uncertainty: you don’t know exactly what those future products and services will be.So what do you do? You have to guess. Would you prefer to guess wildly, using the dart-board method? Or is it better to make a well-informed guess that you develop painstakingly, taking into consideration a huge range of possibilities and options, trying and testing a lot of ideas, developing from your own experience a reasoned hypothesis about where the market is likely to go based on your understanding of technology, consumer preferences, the economy, demographics, and competitive trends?Ok, so well-informed is better. How will you get there?Your best chance is to try a lot of ideas in order to learn what works and doesn't work. This will happen in some sort of laboratory, whether it’s a chemistry lab or a machine shop or a test kitchen or a spreadsheet. Some of the ideas will seem to succeed, while other will not. You will learn from both; you will learn more from the failures. Since we have an athletic theme going in this chapter, let’s quote golfer Bobby Jones, who said, “I never learned anything from a match I won.”While that may not be quite true about innovation test runs, the point is clear enough; there’s a lot more to learn from failing. Of course the end goal is to not fail, to succeed spectacularly. So in this context the failures are the enablers, the instances of trying and learning, trying and learning, along the way.
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I've been working on a new book on innovation management entitled The Innovation Master Plan. One of the main topics of the book is the innovation portfolio management. I thought it might be interesting to post some excerpts from the book here.
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