How can you communicate the impact of your innovation portfolio on your organization's bottom line?

Defining clear innovation goals and aligning them with the organization's overarching vision and mission is crucial. It's essential to establish a robust framework for measuring innovation progress. Key performance indicators (KPIs) and metrics should not only reflect immediate outcomes but also gauge long-term strategic impact. This involves selecting metrics that resonate with both the innovation's nature and the broader business objectives.

It depends on what is the nature of your innovation portfolio. There is no winner-take-all approach. Two distinct innovation approaches and communication should be tailored to each project. 1. Exploitation involves enhancing existing processes, technology, and products. When assessing the impact on the bottom line, it is crucial to identify key metrics such as improved experience, increased customer retention, reduced churn, or cost savings. 2. Exploration involves venturing into new areas. You should highlight both the long-term benefits and immediate wins. Long-term impact can be measured by market size, reach, or alignment with vision. Short-term includes milestones like the first pilot, proof of concept, and ongoing advancements.

Unlike other metrics in marketing, sales, finance, HR - there aren't a set of metrics that are set in stone for innovation. This means that innovation metrics are any metrics that your innovation initiatives are impacting and it usually overlaps with other functions since innovation initiative is x-functional. It could be new revenue generation, CSAT, WAU:MAU, gross margin, etc.

I think for innovation it often makes more sense to refer to activity driven OKRs than outcome driven KPIs. Even if you're successfully identifying the rights challenges and source and validate ideas, you might still not launch a new innovation into the market. That doesn't mean you're innovation team isn't doing the right stuff, nor that you should stop innovating. Especially in the beginning, you want to look more at Activity and Process metrics. Later, when you actually have realized innovations, you want to start including financial metrics.

Setting innovation goals and metrics are critical. However, rigidly defining these from the onset could limit adaptability. Innovation is inherently uncertain and dynamic, requiring flexibility in goals and success measures. It might be beneficial to embrace an iterative approach to goal setting, allowing for adjustments as new insights and market conditions emerge.

The segmentation of the portfolio is important not only for the level of risk and uncertainty the individual projects carry, but also for what approaches are suitable for the development of the projects. Also, using the McKinsey Horizon model is fine, but it should be noted that it is a growth framework, not an innovation framework. As long as that is clear, you won't run into problems. Other ways of segmenting can be tied to what the intended innovation is doing to the value chain. Which gives a better chance of making the innovation activity avoid silos.

Segmenting your innovation portfolio is crucial for clarity and strategic focus. However, it's essential to remember that this segmentation should not lead to silos that hinder cross-functional collaboration and knowledge sharing. Each segment, while distinct in its objectives and risk profile, should be interconnected with the broader business strategy. This interconnectedness ensures that even the most transformational innovations are grounded in the reality of the business's capabilities and market dynamics.

Your innovation portfolio should look like this: 70%: Incremental innovation for improving existing product for existing and new markets. 20%: Breakthrough innovation for creating new product for existing or new market. 10%: Disruptive innovation for re-inventing existing categories or creating new categories for existing or new markets that will cannibalize your core business, but re-invent the industry with your company as the leader.

Yes, you want to segment in order to show how you're addressing all three horizons. Theory states that an organization wants to spedn about 70% on Horizon 1 (H1), 20% on H2 and 10% on H3. The reason is that H1 is your current business and also the efforts that are more certain in value generation. With that value you can then invest in H3 experiments of which only a maximum of 10% is expected to be successful. That is also why you shouldn't segment your result communications per horizon. Every financial analyst would argue to only continue with H1, while the H3/H2 are the big bangs that keep you alive on the long-term.

While categorizing an innovation portfolio provides a clear overview, it may inhibit the recognition of synergistic opportunities across these divisions. Moreover, substantial diversity within the portfolio might lead to overcomplexity and resource dilution, affecting the drive of pivotal projects.

Visualizing an innovation portfolio is crucial for effective communication, especially in a complex and dynamic environment. The choice of visualization tools, such as dashboards, heat maps, or matrices, should be aligned not only with the audience's comprehension but also with the strategic objectives of the innovation initiatives. A nuanced approach is required here.

Visualizing an innovation portfolio can indeed make it more accessible and engaging. However, oversimplification might inadvertently lead to inaccurate representations and missed nuances. Reliance on visual tools may restrict decision makers from understanding the complexities involved, potentially prompting short-sighted or suboptimal decisions. It is vital to balance simplicity with a thorough comprehension of the underlying details.

Visualization is great, but it is only useful if you use the information from the visualization to make decisions. To make decisions based on a single visualization is typically not the wisest choice; there are probably several visualizations that you may want to use.

Storytelling is a potent mechanism in conveying the essence of innovation projects. It transcends mere data presentation, tapping into emotional engagement and relatability. This approach humanizes the innovation process, making it more accessible and compelling. By weaving narratives around challenges and triumphs, you not only illustrate the journey but also embed your innovation within a context that resonates with your audience. It's crucial, however, to balance these narratives with concrete outcomes and measurable impacts. This blend of storytelling and empirical evidence creates a holistic picture, demonstrating not just the journey of innovation but also its tangible benefits and strategic alignment with broader organizational goals

When communicating your solutions to stakeholders, there are different communication mediums to use depending what part of the solution you're displaying. If you're showing the future of the solution how it will impact them, Eg. use video storytelling to paint future vision, and coupled with ROI calculator. If you're showing them your execution plan, show your roadmap and progress status, get them involved and manage their expectations.

Make sure to include stories on your failures and what you learned from them, because your portfolio won't only be successful!

The essence of effective innovation portfolio communication lies in its tailored approach. Senior management indeed seeks strategic alignment and ROI clarity, while customers look for tangible benefits and value addition. Employees, on the other hand, are keen on understanding their role in this evolving landscape. This demands a multifaceted communication strategy, one that not only addresses diverse concerns but also resonates with the varying motivational drivers of each group.

Before you communicate with functional teams, make sure you position the idea that benefits them. Then contextualize your messaging to fit their way of understanding. For marketing, you might want to talk about how the idea will impact lead gen, campaigns, etc. For CS, you might want to share how the idea will impact SLA, less support required, etc.

There is nothing in this article at this point in time that actually shows any indication of what the innovation portfolio will bring to the bottom line. A way to get around that is to use valuation frameworks to give an indication. An easy way to start is by using a tree-based valuation model like the one proposed by Bob Cooper in "Where Are All the Breakthrough New Products? Using Portfolio Management to Boost Innovation,” from 2013 or go all the way to use real options valuation from the likes of Van Putten and McMillan. It is important to note that the valuations are INDICATIONS and are due to change as more information becomes available and the necessary assumptions in the valuation become validated or not.

Financial evaluation provides for a rational and impactful link between your innovation portfolio and your company's bottom line. The suitable and intelligible (!) method exists: Real Options. Like NPV, this is a metrics for "expected value creation". While NPV applies to linear, predictable projects, Real Options apply to innovation projects that navigate uncertainty in an AGILE manner. This agility minimizes financial and personal (!) risks, thus unleashing access to innovative opportunities. Real Options apply to fast Business Casing for taking acceptance decisions. If accepted, the project enters a suitable portfolio: Exploration, Development, Exploitation. Then, Real Options are also used as criterion to allocate budget dynamically.