Linking Innovation to Value

In a recent post looking at the The failure of strategic planning  and the overall value delivery chain centred on projects and programs, the link between innovation and the strategic plan was raised briefly. The purpose of this post it to take a closer look at this critical ‘front end’ of the value chain because it does not matter how well you do the wrong projects! The ability to generate sustainable value for an organisation’s stakeholders requires the right projects to be done for the right reasons; and yes, they also need to be done right!

The section of the ‘value chain’ leading into a portfolio management decision to select a project or program as a viable investment is far more complex than the section after. Once a project or program has been selected, it needs to be accomplished efficiently, the outputs transferred to the organisation and the organisation adapt to make efficient use of the ‘deliverables’ to realise the intended benefits and generate value. This flow of work is primarily the responsibility of the project/program sponsor initially supported by project and program management, and then by organisational ‘line management’ until the final transition to ‘business as usual’ operations.

Developing a business case to the point where it can be accepted for investment is more complex, involves a wide spectrum of managers and potentially involves a number loops.

The three elements in this section of the overall ‘value chain’ are a viable strategic plan, a realistic business case that supports an element of the strategy and an effective portfolio management system to optimise the overall portfolio of projects and programs the organisation is capable of investing in.

The key is an effective and viable strategic planning process that is capable of developing a realistic strategy that encompasses both support and enhancements for business as usual, and innovation. Strategic planning is a complex and skilled process outside of the scope of this post – for now we will assume the organisation is capable of effective strategic planning.

The sign of an ineffective, unresponsive strategic planning process is seeing business cases fired off by business units without any reference to the strategic plan or worse projects being started without strategic alignment. The option to bypass the strategic planning may be valid in an emergency but not as a routine option. In a well disciplined value creation process, the portfolio management team simply reject business cases that cannot demonstrate alignment with the organisations strategic intentions. The red arrow in the diagram above simply should not be allowed to occur in anything other then an emergency situation.

The Portfolio/Strategic link (blue arrow)
There is a close link between the portfolio management processes  and strategic planning – what’s actually happening in the organisation’s existing projects and programs is one of the baselines needed to maintain an effective strategic plan (others include the current operational baseline and changes in the external environment). In the other direction, the current/updated strategy informs the portfolio decision making processes. The strategic plan is the embodiment of the organisation’s intentions for the future and the role of portfolio management is to achieve the most valuable return against this plan within the organisation’s capacity and capability constraints.

Routine inputs to the Strategic Plan (light green arrows)
The routine inputs to the strategic planning process come from the ‘organisation’ and include requirements, opportunities, enhancements and process innovations (eg, new software releases). These basic inputs are the core information required for strategic planning and form the majority of the new information in each update of the strategy.

The Innovation / Strategic Plan loop (light blue arrows)
This is the first of the more complex spaces – innovative ideas can come from anywhere in the business and are actively encouraged by leading organisations such as Google and 3M. Conversely, an organisational objective may require innovation to allow it to come to fruition. One of the most challenging objectives in recent times was Kennedy’s commitment to “before this decade is out, [land] a man on the moon and return him safely to earth.” The amount of scientific innovation required to achieve this objective was incredible.

The organisation’s governance processes and strategic development processes need to both encourage innovation whilst recognising that not every innovative idea will be appropriate for the overall development of the organisation. This requires the implementation of systems to encourage innovation, collect and sort innovative ideas and move the ‘right’ ideas into the strategic plan, where necessary revising and changing the plan to grab the innovative advantage.

The Feasibility loop (orange and yellow arrows)
Having innovative ideas and creative business cases is one thing, validating the feasibility of an idea is altogether different! The ability to test, validate and work-up innovative ideas into practical project specifications is a critical organisational capability. On mega projects the pre-feasibility and feasibility studies may in fact be significant projects in their own right involving considerable expenditure, feeding back to a gateway or portfolio management process to allow the next stage of the project to commence.

Several of the ‘gateways’ defined in most standard ‘gateway processes’ precede the commissioning of the main project and the organisation needs the capability to make informed decisions based on good quality information. This aspect of the value creation chain is industry specific and may be a central function or distributed across different business centres. What matters is the capability exists with the necessary skills to validate ideas and design projects ready for the more traditional project management processes to take over once the project is formally authorised.

Conclusion
The long term viability of any organisation depends on its ability to innovate. Traditional project and program management focus on doing the selected projects/programs ‘right’. But it is the ‘front end’ processes discussed in this post leading up to the investment decision that determine if the ‘right’ project is being selected for the ‘right’ reasons!

The effective governance of an organisation should require its management to invest sufficient skills and resources in these ‘front end’ processes to ensure a steady flow of innovative ideas, feeding into an effective and flexible strategic planning system, linked to a disciplined portfolio management process; to ensure the optimum mix of ‘right’ projects and programs are commissioned and supported.

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3 responses to “Linking Innovation to Value

  1. Pingback: Who Manages Benefits? | Mosaicproject’s Blog

  2. Pingback: PMI’s Standard for Portfolio Management | Stakeholder Management's Blog

  3. Pingback: PMI’s Standard for Portfolio Management | Mosaicproject's Blog

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