Where Are All the Breakthrough New Products?: Using Portfolio Management to Boost Innovation

OVERVIEW:There is a real shortage of breakthrough initiatives in businesses' development portfolios. A major challenge in developing these high-risk projects is portfolio management—how executives make R&D investment decisions. Financial approaches, such as net present value and the productivity index, are traditionally recommended to lend rigor to go/kill decisions. An overreliance on financial tools favors incremental projects whose financial forecasts are reliable, however, producing an abundance of small, low-hanging-fruit projects and a failure to allocate resources to strategic projects. Different toolsets must be used to assess high-risk breakthrough initiatives, including strategic buckets, expected commercial value, and spiral development processes. All of these must be supported by a climate and culture that provide the appetite to take on risky projects.