Creating a Framework for Effective Innovation Project Portfolio Management

Abstract

Most firms have more ideas for innovation projects than the R&D budget can support. On top of that, the industry of firm-X (at which the research took place) is characterized with long development cycles and expensive full scale testing. Therefore, it takes these firms a long time to actually see effects in form of the returns on their investments. Selecting the right innovation projects becomes very important for the long term survival of these firms. Innovation Project Portfolio Management (IPPM) has the potential to bring considerable benefits to structure the Innovation Project Portfolio (IPP) of these organizations, being a mindset where portfolio thinking is central. However many tools used for IPPM are based upon unreliable information or implicit judgment reducing the effectiveness. The design of an integrated and effective IPPM framework and understanding the factors that affect this framework are central in this research. This thesis describes the design of such an IPPM framework for the industry of firm-X, which is based on firm-X. It has been investigated at firm-X how the following aspects affect the IPPM decision making process: long term, top-down/bottom-up innovation approach, technological push & pull, formality of IPPM approach, and inter-organizational innovation activities. These aspects are important because they are affected by the choices made in the IPPM decision making process. Especially the collaboration of inter-organizational innovation activities can increase the value of R&D and also increase the performance of the current IPP. To conduct this research first of all a literature study was undertaken to understand the concepts related to IPPM and investigate contemporary tools for IPPM. Next, the current framework at firm-X is assessed by analyzing internal documents and conducting open interviews. Thirdly semi-structured interviews have been executed in two rounds with respectively 13 and 5 respondents from firm-X to find out how the aspects central in this study affect the IPPM decision making process. Finally, the results of the preceding are used to design an integrated and effective IPPM framework. The results show that top down/bottom-up innovation approach, a long term focus, and technology push & pull can be integrated in the framework. The interviews show in contrast to the theory that not all innovation projects should be aligned with the strategy, in particular innovation projects that are radical and young need to be given space to develop. The reason why this is done, is because it is often difficult to assess whether these innovation projects fit the strategy. The literature study and the research conducted at firm-X leads to a set of requirements for the new framework. The general framework consists of four steps, 1) measuring the current IPP state, 2) indicating the desired IPP state, 3) comparing the two states, 4) use the outcome of step three to adjust the current IPP state to approach the desired IPP state. This framework will help to reduce implicit judgment in the decision making process and will create a more systematic approach to select the right innovation projects. This integrated approach should lead to achieving the three goals of effective IPPM: strategy alignment, value maximization and creating balance IPP. The four steps of the general framework just discussed are transformed into a framework that is applicable at firm-X is based on a strategic bucket approach, technology roadmapping, and expected commercial value (ECV) calculations. Traditionally the strategic bucket approach is used to divide the R&D budget over one set of buckets. In the new framework the strategic bucket approach is operationalized by dividing R&D over multiple sets of buckets. This is done by dividing the R&D budget over four sets characteristics of innovation: 1) Technology Readiness Levels (TRL’s), 2) parts of the value chain, 3) product groups and 4) key technologies. These four characteristics lead to four sets of independent strategic buckets that indicate the current IPP state. The desired state of the R&D budget over the different TRL’s and parts of the value chain were indicated in interviews (with firm-X employees), therefore allowing an easy comparison of the current and the desired IPP state. The desired state of the Product Groups (PG) and Key Technologies (KT) is dependent on both the business environment and strategy. An ECV calculation of all the future products (indicated in the technology roadmap) will indicate the importance of each PG and KT for the future of firm-X, which can be seen as an indication of the desired state for the PG and KT. This approach enables that the four innovation characteristics of the framework can be balanced at the same time. Also, technology roadmaps that show development logic limit the number of IPP combinations. The aforementioned method in turn helps in choosing a specific path for selection of innovation projects that match the four desired states of TRL, parts of the value chain, PG and KT. It is due to these characteristics that the effect of inter-organizational innovation activities can easily be incorporated to see its effect on the current IPP state. Finally during the thesis also the supporting tools have been developed for the framework, meaning that an excel basis has been developed where all the innovation projects can be summarized and then automatically the graphs of the four characteristics for the current and desired IPP state are created. Also a program has been written in the matlab environment that can read the excel file and then produces the technology roadmaps. In this way the new IPPM framework can be supported, increasing the speed and the creation of the evidence based decision making process in IPPM.