Innovation, portfolio management, and agility as a happy family
Muhammad A. B. Ilyas, CEO, LIFELONG, Kuwait
This paper describes how a happy family of three senior members — Innovation, Portfolio Management, and Agility — can deliver best results when it comes to strategy development and execution in today’s rapidly changing world. Program and project management are two younger members of the same family and they also make significant contributions to the achievement of strategic objectives.
This paper elaborates on the use of innovation as the main driver of organizational strategy and how it can be leveraged to facilitate the change required for achievement of goals. Maximizing value with limited resources requires innovative thinking. Processes with related tools and techniques, which can be employed to foster innovation, are also described.
The role of portfolio management is also becoming critical as more and more organizations adopt formal and informal methodologies to drive strategic initiatives. After providing the grand outline of the process, this paper covers approaches that integrate innovative thinking into portfolio management, which can help in designing an optimum portfolio architecture.
As market conditions and value drivers change rapidly, agility is increasingly being recognized as a key element of an organization’s competitive advantage. The paper discusses how agile principles can help in prioritizing initiatives, which allow for constant alignment with long-term strategic goals and also provide flexibility to respond to demands in the short term.
The paper provides practical guidelines on how to integrate innovation and agility into portfolio management processes to have the right mix of tools and techniques, which allow realization of strategic goals with the ability to adjust alignment due to the environment in which an organization operates. Based on the broad principles applied for portfolios, methodologies for program and project management can also be refined.
Finally, the paper also provides advice on how to sell the idea of integrating the three elements described above and describes possible scenarios of implementation.
Innovation – Key Enabler of Strategy
Innovation is the main idea in shaping corporate life and helping companies adopt various strategic options. It helps to reduce the total cost of production; increase income avenues; maintain efficient operating systems; and so forth. It enables seeing the potential acquisitions not only on a cost basis, but also as a means of accelerating profitable top-line revenue growth and enhancing capabilities. It also expands the R&D base of the country and brings the latest technologies into the country and provides an edge in being able to enter new markets faster and deeper.
Why Do we Need Innovation?
In the ever-changing world, innovation is the only key that can sustain long-run growth of the country, companies, and different associations.
More and more firms are realizing the importance of innovation to gain competitive advantage. Accordingly, they are engaging themselves in various innovative activities, ranging from manufacturing processes, product improvement, and brand building initiatives to customer satisfaction. Today, the business environment has become very dynamic, with more demanding customers and intense market competition. To meet this demand, firms are creating new products, solutions, and services that provide a radically better experience for consumers.
Innovation is not only about technology, it is also about understanding and exploring untapped user needs that require being addressed in an efficient manner. It must occur at every stage of a product or solution development and release cycle. Thus, managing innovation is fast becoming a priority in a global business environment.
Firms that innovate tend to survive and grow to a greater extent. The most successful individuals, managers, and team leaders in the modern business world are the ones who are not only innovative in their own work, but who encourage and assist others in being innovative in every aspect of their work.
Some of the key innovation areas are: product development and improvement; manufacturing processes; creating entirely new set of products; and so forth. In the area of supply chain management, innovations help in making the supply chain more responsive, flexible, and efficient. Supply chain innovation can be used to reduce costs, offer a better assortment of customer-centric products, decreasing time to market and driving growth.
The term 'innovation' is rightly referred to as changes to products, services, processes, or business models. To continue their growth and to attain newer heights, firms need to recognize the importance of 'innovation' for maintaining their competitive edge and fueling further growth. Innovation may be linked to performance and growth through improvements in efficiency, productivity, quality, competitive positioning, and market share.
What is Meant by Innovation?
In Merriam-Webster’s Dictionary, innovation is defined as:
- Is a new idea, device, or method
- The act or process of introducing new ideas, devices, or methods
Innovation is finding a better way of doing something. Innovation can be viewed as the application of better solutions that meet new requirements, in-articulated needs, or existing market needs. This is accomplished through more effective products, processes, services, technologies, or ideas that are readily available to markets, governments, and society.
While something novel is often described as an innovation, in economics, management science, and other fields of practice and analysis it is generally considered a process that brings together various novel ideas in ways that impact society.
Innovation differs from invention in that innovation refers to the use of a better and, as a result, novel idea or method, whereas invention refers more directly to the creation of the idea or method itself.
Innovation differs from improvement in that innovation refers to the notion of doing something different rather than doing the same thing better.
How Can Innovation Help in Meeting Strategic Objectives?
Innovation is one of the strategic objectives for many successful organizations and, in the meanwhile, it is one of the most important enablers in achieving the strategic objective since it is focused on new ways of achieving the main goals with high efficiency.
Without innovation, organizations can’t survive and achieve their strategic objectives in the dynamic world with very limited resources.
Innovation represents today’s competitive advantage, supported by strong mainstream capabilities in quality, efficiency, speed, and flexibility. Innovation can help firms play a dominant role in shaping the future of their industries.
High performing innovators are able to maintain a giant juggling act of capabilities and consistently bring new high quality products to the market faster, more frequently, and at a lower cost than competitors. Moreover, these firms use process and systems innovation as a way of further improving their products and adding value to customers. This combination creates a dynamic and sustainable strategic position, making the organization a constantly moving target to competitors (Kiernan, 1996).
Using Innovation to Maximize Value with Limited Resources
Most innovative organizations have very limited resources because this is the only way to survive, thus you will find them trying to reduce the need for resources by increasing innovation.
“Innovative organizations are able to lever, combine and recombine knowledge and resources into disparate markets, technologies and products — a capability few firms have mastered. Effective resource management helps increase the number of innovation initiatives and improves the probability of stimulating innovation. As firms successfully manage innovation, they accumulate experience and learning, supporting still further improvements.
Process of Fostering an Innovation Culture in an Organization
The appropriate culture and climate within the organization is also vitally important to innovation success. The components underlying the culture and climate construct are tolerance of ambiguity, empowered employees, creative time, and communication.
It’s only with the support of leadership that hierarchal barriers can be broken down, risks can be taken and important decisions can gain acceptance. For some, enabling this culture means changing the DNA of an organization.
Here are some thoughts on how you can get there:
- Talk in terms of learning, not failure. It is a much more constructive way to add to the evaluative process of understanding what works and what doesn’t.
- Encourage social networks — they’re an important part of learning and internal collaboration. Sometimes you get more insight from 160 characters than 160 pages.
- Convene your team. Live socialization is just as important as online engagement because it increases the value of diverse perspectives from different nationalities and cultures.
- Change the perception about where the responsibility of innovation lies. It’s not just the responsibility of leadership or a specialist; it should permeate the whole organization.
- Use cross-functional teams to cluster diverse ideas into new solutions. They provide key insights into the global markets.
- Embed innovation through support from the HR function. Develop genuine rewards and recognition for employees who are engaged in sharing and developing ideas.
- Align innovation with the corporate communications function. This ensures developments are communicated in the context of corporate strategy and future goals.
- Invest in innovation. It can be difficult to justify spending on innovation without adequate return on investment, but continuity in funding ensures a competitive advantage. Set a benchmark for the amount of financial investment you can make in technology innovation and manage it carefully.
Portfolio Management — Another Key Enabler of Strategy
Portfolio management is the coordinated management of one or more portfolios to achieve organizational strategies and objectives. It includes interrelated organizational processes by which an organization evaluates, selects, prioritizes, and allocates its limited internal resources to best accomplish organizational strategies consistent with its vision, mission, and values. Portfolio management produces valuable information to support or alter organizational strategies and investment decisions.
The organizational strategy and objectives are translated into a set of initiatives that are influenced by many factors, including market dynamics, customer and partner requests, shareholders, government regulations, and competitor plans and actions. These initiatives establish portfolios of programs, projects, and operations components to be executed in the planned period (Exhibit 1).
Why Do we Need Portfolio Management?
Portfolio management, through the alignment of the strategic planning establishes the portfolios required to achieve organizational strategy and objectives and performance goals. Management of authorized programs and projects and management of ongoing operations are required to execute portfolios consisting of programs, projects, and operations activities to realize the organizational strategy and objectives.
The ultimate goal of linking portfolio management with organizational strategy is to establish a balanced, executable plan that will help the organization achieve its goals. The impact of the portfolio plan upon strategy is attained by the six areas shown below:
- Maintaining portfolio alignment
- Allocating financial resources
- Allocating human resources
- Allocating material or equipment resources
- Measuring portfolio component performance
- Managing risks
Role of Portfolio Management
The main role of portfolio management is to deliver value in a very efficient way and maximize the use of limited resources. Following are some roles for portfolio management:
- Determination of a viable project mix that meets the target of the organization
- Ensuring a mix of projects that balance various factors such as research versus development, short term versus long term, risk versus reward, etc.
- Regular monitoring of the planning and execution of the optimal selected projects
- Evaluating the performance of the portfolio and various ways for improving it
- Analyzing the recent opportunity against the existing portfolio comparing the project execution capacity of the organization
- Providing recommendations to decision makers at every level of the process management
- There has been increasing awareness among organizations regarding the improvement of the project portfolio management process for making it more efficient. In many companies the improvement of the project portfolio has become part of the organizational learning process.
Grand Outline of the Portfolio Management Process
There are 16 portfolio management processes in the three Portfolio Management Process Groups and the five Portfolio Management Knowledge Areas. Each of the key portfolio management processes is shown in the Process Group in which most of the activity takes place (Exhibit 2).
Using Innovation to Design a Portfolio Architecture
Portfolio management and innovation are both about providing a value in the most efficient way so, although innovation is of the most important enabler to achieving strategy by finding a better way to do the same thing and develop a product and services in less cost and time, we can also fine the role of innovation in designing the portfolio architecture. So, if we apply the same steps of innovation to designing portfolio architecture in less cost and high value, we will gain double the benefit.
Value Maximization through Portfolio Management
Business value is a concept that is unique to each organization. Business value is defined as the entire value of the business—the total sum of all tangible and intangible elements. Depending on the organization, business value scope can be short, medium, or long-term. Value may be created through the effective management of ongoing operations. However, through the effective use of portfolio, program, and project management, organizations will possess the ability to employ reliable, established processes to meet strategic objectives and obtain greater business value from their project investments. While not all organizations are business driven, all organizations conduct activities. Whether an organization is a government agency or a nonprofit organization, all organizations focus on attaining value for their activities.
Successful business value realization begins with comprehensive strategic planning and management. Organizational strategy can be expressed through the organization’s mission and vision, including orientation to markets, competition, and other environmental factors. Effective organizational strategy provides defined directions for development and growth, in addition to performance metrics for success. In order to bridge the gap between organizational strategy and successful business value realization, the use of portfolio, program, and project management techniques is essential.
Portfolio management aligns components (programs, projects, or operations) to the organizational strategy, organized into portfolios or sub-portfolios to optimize project or program objectives, dependencies, costs, timelines, benefits, resources, and risks. This allows organizations to have an overall view of how the strategic goals are reflected in the portfolio, institute appropriate governance management, and authorize human, financial, or material resources to be allocated based on expected performance and benefits.
Agility – Another Key Enabler of Strategy
Role of Agility in Strategy Realization
In the dynamic world, agility has become one of the most important key enablers to achieving strategy because it is based on building the right things and building them right in order to maximize the customer value and be fixable with changes in the direction.
Like the portfolio and innovation, the vision came first in agile. The product vision is a high-level view of the value that the company wants to provide and an understanding of who the company wants to provide it to.
The agile principles and manifesto make the strategy more achievable, and by applying agile concepts the organization becomes more successful because it will always try to maximize the value of the outcome. The ability to lead with a balanced internal and external focus is at the heart of leading strategically. When the resulting opposing tensions are managed successfully, you encourage the adaptability that makes your organization agile. Agile companies have the ability to recognize and respond quickly to market demands without losing the consistency of quality and involvement that made them successful — the hallmark of sustainable, successful organizations.
Applying Agile Concepts in Portfolio Management
Having a good plan is compulsory, but knowing how and being able to respond to the unknown is the real goal and benefit of strategic leadership.
Most product development companies strive for a well-filled funnel of product ideas, project proposals, features, or change requests. Typically, the funnel’s contents exceed the resources available in the organization. Picture yourself in the shoes of the portfolio manager who is in charge of the funnel. Which projects would you initiate when resources become available? Most likely you would rank the projects and pick projects that reflect the desired balance of the portfolio, typically with a focus on high value of returns.
Here is a solution to working within the portfolio but in an agile way:
Treating your project portfolio like a backlog of stories means you are able to say “no” to projects earlier, releasing resources to other projects. That’s good; but what’s better is that, instead of a black or white world, where projects are being canceled or not, you have more options. Consider the following scenarios:
A portfolio manager realizes after two iterations that Project A will not return the promised marketing forecasts. The project’s priority drops and its resources are freed for other more lucrative projects. The project’s achievements, though, are stored; the project has simply been moved into the agile portfolio—returned to the backlog, so to speak.
The originally proposed features list for Project B is 80% complete. The project is far beyond the delivery date and the competition has announced an impending release whose features are similar to the ones that have been completed to date. The portfolio manager decides to stop the project.
Project C is a proposal that initially sounded very promising and relatively easy. Although after only one iteration, reality proved the feasibility study wrong. Rather than waste any more time, executive management decides to cancel the project and remove it from the agile portfolio entirely.
Notice how in all of these scenarios, there was no stigma attached to modifying, delaying, or canceling a project. “No” has lost its sting. Because the investment in each project was minimal, the cost of returning it to the backlog or changing its parameters was also minimal.
Having an agile portfolio allows you to extract metrics that are more up-to-date and focused. Just like a newspaper, which is already outdated when published, project metrics often do not reflect the real health of a project. Extracting reliable metrics from a project is hard enough, but once the metrics have been extracted it can be even more difficult to compare the results with other projects because of the lack of consistency.
An agile selection process should be founded on lightweight metrics that focus on one important area (e.g., measured in delivered use case points, features, risk list management, etc.). Streamlining and standardizing the metrics will allow portfolio managers a quick and transparent overview within review meetings.
Executive management needs to be actively involved rather than being informed. They need to meet together once a month in a hands-on review meeting instead over passively exchanging metrics. With an agile portfolio, they can do that. Since projects are no longer assumed to be continued, these meetings provide a forum to measure each project’s progress and demonstrate it in working software (e.g., implemented use case scenarios, etc.). The review meeting itself could be a fixed date and gateway in an agile project selection process. Management will need to buy in to an agile selection process for this to work.
Innovation, Portfolio Management, and Agility – A Happy Family
Using Innovation and Agility to Drive Portfolio Management
The most common thing in innovation, agility, and the portfolio is to maximize the value in a very efficient way. Using the innovation in the portfolio architecture design and trying to find different ways to reduce the number of resources by discovering better ways to do project and program management will maximize the value. Managing the portfolio in a dynamic way with enough level of stability to achieve the company’s strategic goal will align all the effort to one direction instead of scattering the value in a different direction. We can imagine the portfolio being the father of a family who knows exactly how much they have to spend to do what and when and knows only the main goals the family needs to achieve. At the same time, there are other family members always seeking to maximize the value by discovering better ways to use the innovation process and execute the projects as big stories in the portfolio backlog.
What Would an Innovative and Agile Portfolio Look Like?
The portfolio aligns all the projects and programs to achieve the strategic objective and manage the risk and interrelationships between the projects and programs. Innovation plays a very important role in inventing solutions for the integration and portfolio architecture in order to achieve the maximum value with limited resources. Agility will give enough flexibility to change manage the projects and programs within the portfolio and send all the metrics to the portfolio to measure the success or take the corrective action. We can imagine the relationship between them in Exhibit 3
The portfolio applies the governance and aligns all the projects, programs, and other initiatives with the strategic objectives. Innovation helps to maximize the value and find a solution to maximize the efficiency of resources, find creative ways to achieve the target, and always find alternatives to achieve business value in the portfolio boarders. Innovation and agility always check the road map and are the most efficient ways of achieving the highest value—or better—to change without affecting the main constraints, such as time and cost.
The project and program scope is developed to achieve the business value, and if this scope doesn’t achieve the value, and we only do it because of the restrictions and the static plan, then the organization will not achieve the market advantage.
Refined Portfolio Management Processes
Portfolio processes will not have a major change in terms of aligning with the strategy but will be affected by the dynamic nature of the innovation and agility, thus it should be fixable enough for changes, and communication with the main stakeholder should be more closed than before, so it will not be only sending the status report, but top management will play the role of business owner and decide, based on the measures, what to start and what to finish. This requires a very dynamic and sustainable change management system.
In this model, the decision criteria are based on the value more than just executing the plan based on the old feasibility studies and business cases.
In most of the initiatives or business cases developed long before management decided to add this project or program in next year’s portfolio, when we start we may find that the business case is expired totally or partially. In this model, the decisions will be based on the real time measurement, and the innovation and agility will play roles in that.
The system should accept the changes as part of the main key enablers but thereafter be sure that the change is in the business value’s benefit.
What Can We Expect to Gain?
We will gain a high business value and reduce the waste of time and effort in running some projects or programs, or at least part of them, without any real benefit.
We can direct the investment to the projects that have a high value.
We can be compatible with the dynamic market, which will give us a more competitive advantage.
We can increase the contribution of executive management; mid management; project, program, and portfolio managers; and team members to achieve the strategic objectives.
Common Challenges and Concerns
- To build the portfolio architecture we need to be more fixable, which requires more effort and follow up from the portfolio manager and the value needs to be reevaluated more often.
- The gate control as part of governance needs to be changed from focusing only on the deliverables to focusing more on value realization.
- Financial control over the dynamic portfolio needs more efforts
- The information distribution needs to be very fast and efficient.
- More effort is needed to manage the risk, because every time we make a change in the backlog, either by stop or add or even reprioritize, we need to check the impact not only on the project or program but also on the portfolio as a whole.
- The organizational culture needs to change in order to align with the new system.
- The mix that may happen between business agility and agile methodology.
- Some projects and programs will not be easy to change during the execution.
How to Sell the Idea
This idea is not a small one that can be sold in one or two meetings because it changes the whole organization and impact all layers of the organization. Regardless of whether the idea is good or bad, if management didn’t buy it, it is worthless.
Here is a simple five-step plan to present and sell your idea:
1. Have Prior Credibility
When deciding whether an idea makes sense or not, top management is initially more concerned with the person who has the idea, rather than the idea itself. Unless you have some kind of track record, you're probably not going to get a hearing. If you don’t have this kind of credibility, try to explain your idea to someone who has it already and use him or her as a reference to endorse your idea.
2. Have the 'Next Big Thing'
When you're trying to sell somebody a new idea, you must persuade him or her that the idea confirms his or her own opinions, rather than proves him or her wrong,” says Seth Godin, author of Permission Marketing.
Ideally, the idea should also make people who feel that they're doing something positive and powerful if they decide to invest in your idea. There is a reason that “we're going to change the world” is a business mantra.
3. Adapt Your Story to the Listener
Decision-makers inevitably see ideas from their own perspectives, so this change should be expressed in terms that address the practical business concerns of executive managers.
4. Make Buying Less Risky
Once top management has decided to buy the idea, their mind automatically starts looking for reasons not to do so. So don't wait for the inevitable defenses: rather, anticipate problems and objections in advance and be ready with a convincing response.
Suggest starting the change as a pilot in one of the department portfolios before applying it throughout the organization.
5. Create Momentum
Ask for feedback frequently throughout the dialog. The best part about this is if you continue to check for agreement. If management doesn't do this, however, you'll have to ask for the next step. If you get agreement, you have the green light you need to move forward. So the next question is: “When can we bring this to the other partners?”
Change Management Outlook
Changing Organizational Culture
- At all times, involve and agree on support from people within the system (system = environment, processes, culture, relationships, behaviors, etc., whether personal or organizational).
- Understand where you and/or the organization is at the moment.
- Understand where you want to be; when, why, and what the measures will be for getting there.
- Plan development toward item #3 (listed above) in appropriate achievable and measurable stages.
- Communicate, involve, enable, and facilitate involvement from people, as early, openly, and as fully as possible.
John P. Kotter is an American Harvard Business School professor and leading thinker and author on organizational change management. Kotter's highly regarded books, Leading Change (1995) and the follow-up book, The Heart of Change (2002), describe a helpful model for understanding and managing change. Each stage acknowledges a key principle identified by Kotter relating to people's responses and approaches to change, in which people see, feel, and then change.
Kotter's eight-step change model can be summarized as:
- Increase urgency
- Build the guiding
- Get the vision right
- Communicate for buy-in. Involve as many people as possible
- Empower action
- Create short-term wins
- Don't let up
- Make change stick
Elsewhere in this paper, we will cover how we can use the above steps to do the change in the organization to apply the new model.
Getting the Buy-in
In his book, Buy-In: Saving Your Good Idea from Getting Shot Down, Dr. John Kotter says: “You've got a good idea. You know it could make a crucial difference for you, your organization, your community. You present it to the group, but get confounding questions, inane comments, and verbal bullets in return. Before you know what's happened, your idea is dead, shot down. You're furious. Everyone has lost: Those who would have benefited from your proposal. You. Your company. Perhaps even the country.
Dr. Kotter mentioned that there are 24 specific attacks and responses; here, we will cover the four basic attack strategies and a summary of the response strategy.
Four basic attack strategies:
- Fear Mongering
- Death by Delay
- Ridicule and Character Assassination
The main response strategy:
- Let the attackers into the discussion and let them go after you.
- Keep your responses clear, simple, crisp, and full of common sense.
- Show respect, constantly. Don't fight, or collapse, or become defensive.
- Focus on the whole audience. Don't be distracted by the detractors.
- Prepare for the inevitable attacks; with more preparation, the bigger the stakes.
Applying the change management process:
- Increase urgency. Inspire people to move, make objectives real and relevant, and apply the new model of Innovation, Portfolio, and Agility.
- Build the guiding team. This could be the PMO team within the organization or a cross-functional team used to apply the change.
- Get the vision right. Let the team, portfolio manager and other executives establish a simple vision and strategy; focus on emotional and creative aspects necessary to drive service and efficiency and how this will help the organization to win in the market and create more benefits.
- Communicate for buy-in. Involve as many people as possible, and let all the stakeholders know about the new system and how they can contribute to it.
- Empower action. For a big change like this we need to empower action and give people more trust and responsibility and make them accountable for the change.
- Create short-term wins. Quick wins like a value realization report and how the new system can save money and time will provide big support for the new idea.
- Don't let up. Foster and encourage determination and persistence; send ingoing reports with metrics and try to keep everyone update.
- Make change stick. Reinforce the value of successful change via recruitment, promotion, new change leaders, including some of the program, project, and portfolio managers and some other stakeholders, including executives and other staff, and this way you try to weave change into the culture.
In the case of changing how the organization works in portfolio, innovation, and agile we need to follow the previous steps to gain a result (not only a strategy on paper), which is the main value behind this change.
In the current dynamic environment, sticking with a rigid control strategy and applying all the projects and programs as per their old business cases, are not helping organizations achieve maximum value.
Portfolio managers and executives have to deal with the portfolio as an agile portfolio, which is not static and the projects that are either separate ones or under one program and, deal with them differently in order to achieve the flexibility.
Since this framework will have many challenges regarding the changes and the integration between the project, programs and other work, innovation will play the role of having an innovative solution to enhancing the results and dealing with limited resources and maximizing the value.
Portfolio plays the role of governance body and aligns all the efforts to achieve the strategic objective and play the role of the father in this family. Innovation will try to find the best solution to make things done in a most effective way and link everything together to achieve the maximum benefit and plays the role of the mother. Agility is an approach and concepts that try all the time to be fixable and stable, simple, monitor the progress, build a healthy environment and plays the role of son or daughter in this happy family.
The interaction between the three of them is very important because agility with innovation without portfolio will end somewhere else; but not achieving the strategic objective, innovation with portfolio without agility will not give us the fixable tool and techniques needed to run the portfolio component. Portfolio and agile without innovation will face a problem, because we will need to increase the cost of resources and may not discover better ways to achieve our target.
This change is not easy and there are many concerns and constraints, which is why we need the change management process and principle to play a role here to make it possible and accepted by organizations.
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© 2014, Mohamed Khalifa Hassan, Muhammad A. B. Ilyas
Originally published as part of 2014 PMI Global Congress Proceedings – Phoenix, Arizona, USA