“We struggle to allocate budget among many innovation projects.”

“We struggle to allocate budget among many innovation projects.”

Darrell Velegol, PhD

2023nov29

Another in this series of “Innovation Opportunities”.

SITUATION: One client works with hundreds of innovation projects. They have very smart people, and are leaders in a number of products. They struggle to know how much to invest in each innovation and capital project, especially the seed projects, and currently use a Stage Gate methodology.

PROBLEM: How to budget among 100s of projects in the best way, for highest ROI and low risk?

ROOT CAUSE: There are several: 1) Innovation and capital budgeting are sometimes done one project at a time, instead of ALL simultaneously. This usually misses the global optimum by a long way. 2) The right data either doesn’t exist, or lacks confidence. 3) “Favorites” are chosen, without proper rationale.

IMPACT: Knowing “which table to play at” (i.e., where to place your bets) is usually the most important of all innovation decisions. Imagine raising your Internal Rate of Return (IRR) from 5-10% to 20% just by the selection of projects, and archiving some (at least for now). An extra 10% return can be worth $10s MM/yr.

COACHING TIP: Use the right data, analyze all projects simultaneously to get a global optimum, and archive projects that aren’t “winners” (at least for now).

STRUGGLES BEFORE: Before we started, the projects were ranked individually, using a Stage Gate style process.

VICTORY AFTER: Our analysis revealed a huge opportunity, to more than double the IRR of the innovation portfolio. Those projects that are being archived will have their resources re-allocated, to vectorize the best portfolio forward faster.

To learn more, start with the 2021 IECR article “Gambling on Innovation” given at

https://www.linkedin.com/smart-links/AQGNZoNL8sivaA