Do you understand what products will deliver your growth in the short and long term? Do you spend the right amount of resources on those products that will drive greater profitability?
Over emphasis on short term profitability, impedes long-range strategic planning. Is your innovation portfolio BALANCED across both short and long term investments? The objective to;
“Optimise the return on your innovation investments”
Gerard Ryan
requires consideration of both short-term and long-term objectives. It also requires consideration as to whether the balance of investments across different product categories, markets and development types aligns with your business strategy
Effective Portfolio Management has 3 primary goals:
- Alignment with business strategy
- Balance across project types, categories and markets and,
- Value to both the company and its customers
Analysing your portfolio of active and potential innovation investments requires a series of alternate lenses or “Strategic Buckets” within which to sort and prioritise projects against these 3 objectives.
For example, a business working on the development of packaging materials may have an objective to ensure that a minimum of 20 percent of its innovation investments are into ecologically sustainable bio-degradable materials. This Strategy is effectively represented as a Strategic Bucket and into that bucket go all the projects which align with that strategy.
Companies seek to achieve BALANCE across Strategic buckets, defining what proportion of resources and investment go into each bucket.
Project PRIORITISATION occurs within each bucket with the golden rule being that projects in one bucket do not compete with projects in other buckets for the resource.
What is critically important to the concept of STRATEGIC Buckets is that they also act as lenses and it is possible to view the total portfolio through a series of alternate lenses.
In practice, 2 or 3 alternate lenses are commonly used to assess an innovation portfolio with the need to assess a portfolio of projects against multiple investments options:
The lenses or strategic buckets you use will be unique to your business objectives and may include:
- Innovation type: Renovations, Line extensions, New to Company, New to Category, New to world
- Markets; Segments, Sectors, Categories
- Geography; Regions, countries, states, cities
- Strategic Arenas; in which the company is seeking to grow business
Each of these buckets help management allocate resources based on the business strategy
Maximising the return on Innovation Investments is a primary goal of every company. How do you pick the right projects and technologies to develop? It’s not easy, but the most successful companies approach their NPD the same way and this consistency helps them to succeed at creating an optimal NPD portfolio.
Gerard Ryan
Investment becomes real when you start spending money. The challenge in New Product Development is how do you decide which projects to support and with what resources? The Strategic buckets method allows you to prioritise which projects you resource. In the context of integrating your Business Strategy with your Innovation Strategy, you need four pillars to be in place.
- A clear Business strategy
- A product Innovation & Technology Strategy
- Clearly defined goals and objectives for NPD
- Defined Strategic Arenas & Focus
Your Innovation Governance process should shift from your product innovation strategy through to investment decisions which are split by bucket. The buckets help strong leadership teams make solid decisions about where resources should be spent and where they should not.
In summary…
Many businesses struggle with having too many low-value commodity products created as a reactive response to customer requests. The challenge for these companies is that they never say NO to customers and fail to be truly strategic about where they want to be.
The concept of strategic buckets is critical to changing this behaviour and to creating strong ALIGNMENT between the business strategy and the Innovation Strategy. Defining and achieving the optimal BALANCE across different Strategic Buckets ensures that investments in higher value and longer-term opportunities occurs.
Within each Strategic Bucket, projects are ranked using a primary VALUE metric such as Incremental Nett Sales or the PRODUCTIVITY INDEX. This metric is used to rank projects based on “bang for buck” or return on investment ROI.
Implementing the concept of Strategic Buckets in your business requires:
- Analysis of the alternate lenses by which the portfolio might be viewed
- Definition of the planned investment/resource commitment to each Strategic Bucket
- Ranking and prioritisation of projects within each bucket.
Want to know more about how to effectively improve your product portfolio using strategic buckets, please contact: [email protected]
