When you are only working on one innovation project at a time, you can give it all the care and attention it needs. There are no competing resource demands; at least for creating new products and services.
Life gets more complicated as your company grows and you are managing a bigger product range, more markets and geographies, and a lot more innovation projects as you try and keep your offer to the customer fresh and up to date.
Even a medium size business could have a dozen live innovation projects at any one time, and a large multinational may have hundreds.
Now you have a portfolio management problem. How do the projects support the business strategy? How will you allocate scarce resources among the projects? Is there diversity in the project types, ambitions, size and duration? Can your portfolio cope with changes in customer needs, available technology and business performance? Is it robust?
The best way to start thinking about your portfolio is to visualise it as a whole so that you can see how the mix of projects fits your needs.
There are many portfolio tools, but one that I have found extremely useful is the consumer/technology matrix. I learned and used it in my early career with Unilever. I am not sure who developed it, so my apologies for not acknowledging the creators, but this has been the tool I have turned to most often in the last 30 years.
The consumer/technology matrix
The consumer/technology matrix looks at how the consumer or end-user will value an innovation, and the technologies used to deliver it. Popular in the consumer goods industries, it has applications in any market. It shows the strategic intent of the projects and their risk profile. It is used to review portfolio balance and strategic alignment.
The axes are:
Consumer Value Perception – how does the customer or end user benefit:
- No change
- meets existing needs with no differences seen by the user
- a different way of meeting the existing needs
- meets the existing needs better than other products
- New benefits
- satisfies known but unmet needs
- New core product
- the first launch of a revolutionary new product; changes consumer perception of the market.
Technology – how well established are the technologies used to deliver the innovation:
- uses standard technologies in a standard way
- uses standard technologies in a new way, or slightly ‘tweaks’ the technology
- Next generation
- new developments in technology that offer the chance of real differentiation
- the first use of technology new to the industry
The matrix breaks into four different areas that correspond to four different strategic intents. These are:
- Brand support
- sustains the existing brands; maintains market share
- extends the range of an existing product line; grows market share
- creates a new product line, or a new way of making a product
- radical step forward either in a product, creating a new category, or in manufacturing
Displaying your portfolio
Displaying the portfolio means placing the innovation projects where they fit on the two axes.
As with all these portfolio tools, it is better to put projects roughly into position rather than agonise about the precise scale. In the wise words of the early 20th Century logician Carveth Read “it is better to be vaguely right than exactly wrong”.
It is easy to code the projects by colour and size to indicate characteristics such as cost, target market, potential impact, stage of development, or whatever is relevant to the questions you want to debate.
Balanced or unbalanced
A balanced portfolio clusters along the top-left to bottom-right diagonal. A mix of projects using ‘off-the-shelf’ technologies for incremental improvement with attempts to create brand new offers for the customer using the latest available technology.
When you map your portfolio, it may be unbalanced, and you should be checking whether that is right for your business.
If projects cluster in the bottom right-hand corner, you have a portfolio that invests mainly in low-risk incremental change. Your customers are not going to see much that is exciting and new, and you are continuing to use well-established technologies. Are you innovating enough to remain competitive?
If projects cluster in the top left-hand corner, most of your investment is going into highly risky projects with untried technologies targeting new consumer propositions. You are aiming at market transformation and disruptive innovation, but are you ‘betting the farm’?
An unbalanced portfolio might make sense in your situation. You may need to be defensive in challenging market conditions to protect your market share and margins. Or you may be deliberately trying to disrupt a market as a new entrant to leapfrog strong existing players. That may be your only effective strategy.
Whatever its origins, if you end up with an unbalanced portfolio you should be asking whether that is the right position to take. Perhaps some more work on your existing products and services, your ‘cash-cows’, would strengthen the balance sheet and give you a fallback position if your attempted breakthrough fails, or happens more slowly than you had planned. Perhaps nurturing your current range of products will not be enough to keep your market share. Some investment in bolder innovation may be money well spent.
Risk profiles of different portfolios
Different areas of the matrix have different risk profiles. Projects in high-risk regions ask questions about the benefits.
For example, using a brand new technology to produce a product where the end user will see no improvement looks strange. However, it could be a tactic to test a technology in a low-profile product before applying it to a growth area.
A brand new consumer proposition based on well-established technologies requires careful IP protection. If the idea is exciting but easily copied, how will you defend your position? You may have to buy market share very quickly to get a strong position (Uber, Facebook etc.) and that is expensive.
The value of the consumer technology matrix is that it focuses on what the end user perceives as the benefit, and how technological innovation feeds through into the market. It doesn’t make decisions for you, and depends on your honesty in estimating the benefits of an innovation, but makes the potential consequences of your portfolio decisions visible.
Use it as a thinking tool!
“It is better to be vaguely right than exactly wrong.” Carveth Read, 1914