Building a Strategic Portfolio

the risk of failure must be balanced with the rewards of success.

All but the smallest organizations are likely to want to include more than one innovation project in their strategy. While a decision matrix helps you compare projects, you also need diversity in your innovation portfolio. Portfolio management helps you to achieve this.

For a balanced portfolio you need a mix of decision criteria: the risk of failure must be balanced with the rewards of success. This requires analysis of potential obstacles against potential benefits In general, as safe innovation will be based on what your company does well.

More risky innovations are radical in nature. While the risks of such innovations are greater, the potential rewards are also significantly more attractive. You may decide to back a couple of high-risk projects if they are small because they could move you to a new game -- and if they fail only a small amount of resources will be wasted -- but it would be foolish to base all your hopes of progress on risky ventures that may never work out.

ACTION POINT: Aim for balance in your strategic portfolio so you have a mixture of probable success and more risky -- but potentially more profitable -- experiments.