Identifying Gaps Between Strategy and Funding: An Innovation Portfolio Case Study

//Identifying Gaps Between Strategy and Funding: An Innovation Portfolio Case Study

A CEO for a large, established, infrastructure company announces a new “strategy,” called Win 21. Under this strategy, the CEO says, revenue in 2021 will be double what it is today, even though growth rates in the last five years have averaged just 2%. To support this goal, the CEO defines three priorities:

  1. Defend the market position of established offerings.
  2. Prepare for new contracts currently being negotiated by ensuring critical service capabilities and technology platforms are in place.
  3. Grow in new markets with new and updated offerings.

Clearly, the strategy represents a challenge for every part of the company—especially the innovation team, which will have to create the new offerings that will drive this growth while supporting established and emerging capabilities.

We worked with the product innovation team at this company to interpret the CEO’s challenge and map a path to meet his audacious goal. The first step—a portfolio diagnostic exercise, was used to assess the potential of the current portfolio in light of the new strategy. The key question: Are the level and distribution of current innovation spending sufficient to meet the new goal?

First, the current portfolio of initiatives needed to be organized around the defend/prepare/grow priorities. We sorted the existing projects into twelve product areas that encompassed all activities. Some of these product areas revolved around existing offerings; others related to specific market needs but comprised multiple offerings, and yet others were best described by the technology platform on which they were based. Each of these product areas mapped fairly well to one of the three priorities, as shown below.

The company strategy included three vaguely worded priorities. R&D staff categorized the initiatives into concrete areas within these broad priorities.

The next question: Where are we focusing our time and spending our money today? To answer this question, we created an innovation landscape defined by the priorities and the product areas and placed each of the ~250 initiatives within it. Building a landscape like this was a new exercise for this company, and classifying all projects across these two dimensions (and uncovering the cost of each initiative) was not a straightforward exercise. Conversations with R&D and product teams over several weeks sought to uncover all discrete initiatives, tally up their costs, and classify each one. Along the way, it became clear that many initiatives under the Grow priority were not actually addressing new markets, but rather were attempting to grow company share in existing, mature markets. Consequently, a decision was made to split the Grow priority into two categories: one for existing markets and one for new markets.

The final landscape, shown below, spoke volumes about the portfolio’s ability to meet the new top-line goal. Most of the company’s R&D resources, it demonstrated, were focused on defending existing areas. Within that priority, the vast majority of projects were related to Offering 3 (not coincidentally the biggest current revenue source for the company). Moreover, most of these projects were incremental in nature (light blue in the innovation landscape): aimed at slight improvements to existing capabilities and offerings. Practically none of the company’s resources were focused on preparing for new contracts or growing in new areas, arguably the most important priorities for a growth-obsessed strategy.

The innovation landscape helped show whether current projects align with Win 21 priorities. In fact, most of the company’s initiatives were focused on preserving current revenue sources via incremental improvements to existing services, products, and technologies.

The final question: Where should we be directing time and resources to achieve the goal? This was perhaps the most important question to help the company gear up for change. Answering it meant proposing a new spending distribution across the company’s innovation landscape. This didn’t have to mean abandoning any of the existing projects; many of them, everyone acknowledged, were essential in preserving current customer relationships and ongoing sales. But perhaps, in order to meet the new revenue goal, the R&D budget would need to be dramatically expanded. Rather than ask the executive team about appropriate spending priorities (which had already been tried to little success; it seemed additional details beyond the high-level strategy statement were just not available), we decided to poll those who knew the most about the customers, products, and technologies in play: the product, engineering, and marketing staff. This took place at an all-day workshop with about forty participants.

The workshop began with a poll. One wall of the room displayed an empty innovation landscape. Each participant was given ten votes (ten Post-its) and asked to place their votes on the landscape in what he or she thought were the areas of greatest growth potential for the company. After the voting was finished, the innovation landscape for current spending (shown in the previous figure of this blog post) was revealed, and for the first time many of those present understood where the firm was investing its R&D resources today. Then, we captured the differences between the current landscape and the one created by participants’ votes in a table that set the vote count alongside the current funding for projects. You can imagine the power and shock of seeing the gaps in the current landscape, as well as the dissonance between the distribution of funding (with almost a quarter going to Offering 3, see highlight 1 in the table below) and the areas of greatest growth potential identified by the group.

This visualization generated hours of passionate, intense discussions. Many in the room took their turns at the podium, discussing the pros and cons of existing projects as well as areas where projects were needed to stimulate growth. Over the course of the day, the team developed a shared understanding of the essential beneficiaries of the current funding distribution, as well as where additional funding should be directed when it became available. At the end of the day, everyone had a chance to vote again on the areas of greatest growth potential in the innovation landscape. We added those final votes to the table in a new column; as you can see in the table, there was little change between the morning and afternoon voting distribution in most areas, with a few notable exceptions. Exceptions were in the Defend priority area (highlight 2 in the table) and a 60% increase in growth potential for Market 2 from the morning vote (highlight 3). There is much more of interest in the figure, but the one final piece I’ll note here is the area captured in highlight 4: an area with very little funding rated by no one in the room as having significant growth potential. Given the need for additional spending in so many areas, this area could easily have been canceled much earlier and its funding—though small—redirected to other, more productive areas. This speaks to the value of periodic assessments of the portfolio. It is also interesting that the group consensus was that 34% of the growth potential lay in the Grow in New Areas priority area (highlight 5), but only 7% of current spending is focused there.

Product and technology experts within the company saw current funding as insufficient to meet the revenue growth goals set out by the new strategy. Areas of greatest growth potential were consistently underfunded in the current plan.

The workshop was beneficial to the company and to the R&D organization in several ways:

  1. It highlighted the gaps between current spending and stated strategy.
  2. It highlighted the difficulty of meeting growth goals in the absence of sufficient innovative initiatives.
  3. It underscored the substantial spending required just to meet evolving market expectations in current product areas.
  4. It demonstrated that the group believed key growth areas lacked critical funding.
  5. It created a strong shared understanding of all these problems for the entire group.

The shared understanding is perhaps most critical. Establishing it put the product and technology experts in an excellent position to propose new initiatives to fill the gaps in the current innovation portfolio. With the entire technology team aligned on needs, they stood a far better chance of convincing management that more funds should be allocated to development, a difficult task under any circumstances. For this company, even the shared understanding of the entire R&D organization was insufficient to convince those holding the purse strings to increase the investment in growth-focused R&D. As yet, the company has been unable to seriously pursue the growth goals set out by management.

At Enrich, we have deep experience helping companies benefit from portfolio management at every level of maturity. From startups with developing patent portfolios to the largest R&D-driven companies on the planet, we’ve deployed processes and tools that help them all make better investment decisions. If you’re interested in learning how our tools—Viewport and the Enrich Analytics Platform—can help you level up your portfolio management process, drop us a line.

By |2017-07-10T10:38:27+00:00July 10th, 2017|Blog|0 Comments

About the Author:

Helping companies large and small leverage the collective wisdom of their R&D teams to make better drugs, medical devices, and innovative products across the globe. CEO of Enrich, makers of the Enrich Analytics Platform and Enrich Viewport.

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