Managing Your Innovation Portfolio

Nagji, B. y Tuff, G. ( mayo , 2012 ). Managing your innovation
portfolio. Harvard Business Review, 90 (5) pp. 66-74. (AR30524)

Spotlight on InnovatIon FoR tHe 21st CentuRy

Spotlight

66 Harvard Business Review May 2012

Artwork ricky Allman, We Can See You
2010, acrylic on panel, 12" x 16"

hbr.orG

PhotograPhy: Courtesy of the artist

Bansi Nagji and Geoff Tuff
are partnersat Monitor Group
and leaders of the firm’s global
innovation practice.

Managing Your
Innovation Portfolio
People throughout your organization are energetically pursuing
the new. But does all that activity add up to a strategy?
by Bansi Nagji and Geoff Tuff

May 2012 harvard business review 67

spotlight on InnovatIon FoR tHe 21st CentuRy

ManageMent knows it and so
does WallStreet: The year-toyear viability of a company depends on its ability to innovate.
Given today’s market expectations, global competitive pressures, and the extent and pace
of structural change, this is
truer than ever. But chief executives struggle to make the case
to the Street that their managerial actions can be relied on to
yield a stream of successful
new offerings. Many admit to
beingunsure and frustrated.
Typically they are aware of a tremendous amount
of innovation going on inside their enterprises but
don’t feel they have a grasp on all the dispersed initiatives. The pursuit of the new feels haphazard and
episodic, and they suspect that the returns on the
company’s total innovation investment are too low.
Making matters worse, executives tend to respond with dramaticinterventions and vacillating
strategies. Take the example of a consumer goods
company we know. Attuned to the need to keep its
brands fresh in retailers’ and consumers’ minds, it
introduced frequent improvements and variations
on its core offerings. Most of those earned their
keep with respectable uptake by the market and
decent margins. Over time, however, it became
clear that all thisproduct proliferation, while splitting the revenue pie into ever-smaller slices, wasn’t
actually growing the pie. Eager to achieve a much
higher return, management lurched toward a new
strategy aimed at breakthrough product development—at transformational rather than incremental
innovations.
Unfortunately, this company’s structure and processes were not set up to execute on that ambition;
althoughit had the requisite capabilities for envisioning, developing, and market testing innovations
close to its core, it neither recognized nor gained the
very different capabilities needed to take a bolder
path. Its most inventive ideas ended up being diluted beyond recognition, killed outright, or crushed
under the weight of the enterprise. Before long the
company retreated to what it knewbest. Once again,
little was ventured and little was gained—and the
cycle repeated itself.
We tell this story because it is typical of companies that have not yet learned to manage innovation
68 Harvard Business Review May 2012

strategically. It demonstrates an all-too-common
contrast to the steady, above-average returns that
can be achieved only through a well-balanced portfolio. Thecompanies we’ve found to have the strongest innovation track records can articulate a clear
innovation ambition; have struck the right balance
of core, adjacent, and transformational initiatives
across the enterprise; and have put in place the tools
and capabilities to manage those various initiatives
as parts of an integrated whole. Rather than hoping
that their future will emerge from acollection of ad
hoc, stand-alone efforts that compete with one another for time, money, attention, and prestige, they
manage for “total innovation.”

Be Clear about
Your innovation ambition

What does it mean to manage an innovation portfolio? First, let’s consider how broad a term “innovation” is. Defined as a novel creation that produces
value, an innovation can be as slight as a new nail...