As companies face unprecedented market uncertainty and increasing pressures to innovate, they become more reliant on accurate, up-to-date information and methodologies that raise decision-making confidence. In today’s environment, business leaders have to revisit their innovation strategies and dynamically rethink how investment allocation decisions are made in order to create and capture new, significant opportunities for growth.
As we argued in our whitepaper Evidence-Based Innovation Portfolio Management: Incorporating customer behavior into portfolio decision making, when it comes to making innovation investment allocation decisions, business leaders rely heavily on traditional spreadsheet projections using metrics like NPV, IRR, revenue, and profit . While these types of approaches can work well when applied to a company’s core business with familiar technologies going after known markets, they amount to guesswork when entering uncertain, new territory.
However, status quo methods for innovation investment allocation can be improved. One key way to get there is by having customer evidence take center stage in portfolio decision-making.
As discussed in the whitepaper, customer evidence brings objectivity to the decision-making process. The approach begins long before ramping up development spend by running experiments to validate or invalidate the riskiest, highest impact business case assumptions. The goal of these experiments is to produce evidence in the form of a measurable customer action or behavior that proves a project is progressing toward a profitable, scalable business. Experimentation continues as uncertainty is reduced and progress is made towards a fully validated solution.
When presented with customer evidence that demonstrates progress toward an ROI, portfolio decision makers are enabled to make fact-based investment allocation decisions, ratcheting up funding for those projects that are showing promise, quickly cancelling those that are not, and rebalancing priorities. They are no longer seduced by the false precision in hockey stick projections or assumption-laden spreadsheet projections alone.
Proof of concept experiments are not new. What has changed is that instead of looking at just anecdotal voice-of-the-customer feedback, we are now turning this feedback into behavioral data. Quite simply, it’s no longer about capturing what customers say but measuring what they do. Armed with fact-based insights, business leaders can look beyond traditional financial metrics to make portfolio trade off decisions with high confidence.
Want to learn how you can incorporate customer evidence into portfolio decision-making, so that you can replace uncertain financial projections and opinions with facts? Download our whitepaper Evidence-Based Innovation Portfolio Management.
And those of you who want to test their readiness for a new way of building innovation portfolios, take this survey.
By Noel Sobelman