Several companies have been setting up specific boards to make investment decisions on innovation projects. These go by a few names such as Product Council, Innovation Board, Innovation Committee, Portfolio Council and so on. In most situations, innovation teams pitch their ideas to the boards to get either an investment to start work or get further investment to advance a project already in motion. These boards also make key decisions around time and resources allocation.
A fundamental challenge that these boards face is how to make decisions on innovation projects when so much is still unknown. A natural tendency is to ask for the traditional business plan with financial projections. Most of the leaders that make up these boards are used to making decisions in this way. However, such an approach to decision making works best for projects within the core business where the company has extensive experience. Evaluating innovation projects where there is a high level of risk and uncertainty requires a different approach. Here we recap 3 key elements needed to make investment decisions on innovation projects.
1. What to measure
Evaluating your innovation portfolio boils down to four essential metrics. Revenue Potential sets the financial stage, while Innovation Risk gauges the confidence derived from risk reduction. Money Spent to Test measures investment, including time and expenses, while Time Spent Testing underscores the project's developmental journey. These metrics, combined, yield a comprehensive view for making informed investment decisions on your explore portfolio.
2. Evidence-based decisions
Striving for evidence-based innovation requires a progression through distinct stages: discovery, validation, and acceleration. The journey focuses on evolving customer understanding, value proposition validation, and scaling the business model. Strategyzer's Innovation Project Scorecard serves as a compass, aligning projects with evidence accumulation. The stronger the evidence means the more risk you have reduced. This approach ensures alignment with customer needs and market realities.
3. Killing projects
The art of "killing" projects involves a systematic approach based on evidence. The funnel model begins with a plethora of ideas, dwindling them down through each stage of evaluation. In the early stages, a significant portion of projects are retired due to insufficient evidence. As projects progress, more evidence accumulates, leading to a higher likelihood of continuation.
Ultimately, as projects move from discovery to scale, the goal is to focus resources on those with the best market potential and strategic fit. This iterative process ensures that resources are invested wisely and strategically, leading to sustainable growth and innovation in the long run.
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