Managers often make the mistake of believing they can choose a winning idea on day one. That's not how innovation works.
The best way to find a good idea is to invest in loads of ideas, then see which ideas are showing traction over time. The more ideas you have, the better chance you have of finding something of value to create a new multimillion-dollar business, as Alex Osterwalder, Co-Founder at Strategyzer and author of The Invincible Company, and Tendayi Viki, Associate Partner at Strategyzer and author of Pirates in the Navy, shared with us during Innov8rs Unconference 2021.
Here's the recording of their session, with key takeaways summarized below.
As recorded during Innov8rs Unconference 2021. For access to 700+ other videos and resources, become a member of Innov8rs Community - apply to join here. To work with 50+ experts and leaders to address your key questions and challenges in 6 weeks during Unconference 2022, click here.
There Is No Shortcut
As Alex and Tendayi shared in the video, Bosch's innovation program started with 200 teams. Each team got €120,000 and three months to come up with an idea. Only 30% of those teams had the evidence they needed to move onto phase two, where they received another €300,000 to start exploring and prototyping their ideas. Of those, only 15 businesses made it through the funnel to reach the final phase.
That's less than a 10% success rate from the initial 200 teams to the final stage. A lot of managers want to find the secret to skipping the first 200 teams and get right to the final 15 successful ideas, but that's not how innovation works. Innovation and failure are inseparable twins. You can't have one without the other.
But what tools do you need to decipher which of those ideas has potential? Good innovation portfolio management comes down to the ability to track the progress of ideas.
Measuring the Progress of Ideas in Your Portfolio
Your innovation portfolio is a collection of ideas. Many portfolio managers can't tell which of those ideas are the most viable because they are waiting for the projects to start bringing in money. That's a quick way to waste investments and miss out on opportunities. You need to be able to quickly evaluate which ideas are making progress before they start making money.
When it comes to determining which ideas have legs, you need to measure their progress, not their activity. Activity is a good way to measure how hard the teams are working, but it won't get you anywhere when it comes to measuring the value of the idea itself. Measure the progress by the amount of risk a team can reduce for an unproven business idea.
One of the most straightforward ways of doing this is through an innovation project scorecard.
How to Evaluate a Project Using a Scorecard
To get from an idea to a successful business, you have to reduce the risk that you are producing something nobody wants. Teams can do that by continuously building evidence that is real and factual, and not based on opinion or fantasy.
Portfolio managers should use the scorecard in the three phases of innovation:
- Discovery (typically lasts around 3-4 months)
- Validation (typically lasts around 6-8 months)
- Acceleration (typically lasts around 8-10 months)
Those timelines are guidelines; ideas might stay stuck in a phase for a while. Portfolio managers should score the evidence after each phase, and no project should move onto the next phase until they can show they have enough evidence to support the transition.
How do you know they have the right evidence, though? Both the teams and the decision-makers should know what the required evidence is for an idea to move on and receive more funding. By following this strategy, you make small investments at the beginning and large investments later on with the ideas that show the most progress.
A project scorecard should focus on four areas:
- Desirability. Do customers want it?
- Feasibility. Can we actually build it?
- Viability. Can we make more money than we spend?
- Adaptability. What's the business model environment?
Teams should bring evidence to the table in these four areas. They need to demonstrate that they know customers want it, they can build it, they can make money off of it, and it's the right time to bring it to market.
Scoring the Evidence
A project scorecard allows a portfolio manager to objectively evaluate the progress of an idea and whether it's ready to move onto the next phase. The scorecard should break down areas of desirability, feasibility, viability, and adaptability with questions that evaluators will rank on a scale of zero to five, with zero being there is no evidence at all.
- This is first light evidence, based on what people say.
- Light evidence with real artifacts. Maybe not a working prototype, but feedback based on initial designs.
- Light call-to-action evidence. For example, potential customers are visiting a landing page and supplying their email addresses. They are taking action without a commitment.
- Strong call-to-action evidence. This might come from customers making a deposit or a pre-purchase on a product.
- Irrefutable evidence. They are purchasing a product from a pop-up store, for example. The customer doesn't know it's an experiment, they see a fully-fledged product.
Ideas won't get all fives at the beginning stages, but as they move from the discovery phase to the acceleration phase, their scores should move up. That's how you know the idea is making real, tangible progress. By the acceleration phase, they should demonstrate strong evidence in each building block.
3 More Tips for Managing An Innovation Portfolio
Manage the Portfolio as a Whole
There should be a team working in the background to manage the portfolio as a whole. This team can look for potential synergies between ideas, whether ideas are cannibalizing each other, or identify which projects have already started in another market. There is no mathematical formula for this kind of management, it's just something that needs to happen.
Evaluate the portfolio as a whole in terms of financial success, too. Track the progress of the overall portfolio to see what returns you are getting from it. The only way you'll get value from an innovation portfolio is to make sure the returns are more than what is being invested into the individual projects.
Adopt the Scorecard
If you are trying to introduce the idea of using a scorecard to evaluate an innovation portfolio, the last thing you want to do is announce you have a newer, better system. You'll just get met with resistance. Instead, find ways to plug it into the current system. When you filter it in, people will start using it more and more because they'll see that it works. Give them a feel for the tool first, then let them adopt it naturally.
They'll see that when they use the scorecard, it makes it easier to determine where they should keep investing based on evidence rather than a gut feeling.
Reward Failure
Typically, it's only the teams with the successful ideas that end up getting the promotions and bonuses. It's impossible for every team to win. But there may be ways that every team can benefit from the success of the portfolio as a whole.
By doing this, it encourages people to take risks instead of acting like every idea is a success. It teaches them that failure is okay and that all teams will benefit because ultimately, they all contributed to the portfolio in some way.