Managing Risk and Reward in an Innovation Portfolio (Part 2)

This is part of a long series in a number of postings based on the Spring 2009 Issue of OnPoint (from the Harvard Business Press) dedicated to Risk Management.

Specifically, this particular post is the 2nd and final of my review of the article: Is it Real? Can We Win? Is it Worth Doing? Managing risk and Reward in an Innovation Portfolio by George S. Day

The authors offer a two step process to help filter big potential and larger risk projects to ensure success and impact. The Risk Matrix: This tool subjects an innovation to a two-step process so that the use gets a clear vision of how all projects fall within a “probability of failure” matrix.

1. First Step, projects are subjected to a inquiry on the intended market (customer behavior, bran promise, competition, ect.) and product/technology (technology competency, manufacturing and delivery systems, quality standards, etc.).

2.From this analysis a score is derived and subjected to a graph. The score of the Intended Market becomes the X-axis score on the matrix. And the Product/Technology score provides the Y-axis plot point on the matrix.

Finally, each score for all innovative products gets plotted to provide the company with a meta-analysis to assess its overall portfolio risk.

R-W-W: Is it Real? Can we win? Is it worth doing? This test is a series of triage kind of questions based on the original three designated by its code R-W-W. the next step in the inquire is breaks each of these three down into six deeper questions (two for each element in R-W-W).
For example, under "Is it Real," the authors pose two clarifying questions:

Is the market real? And Is the product real?

Then those questions are further subdivided. For example, under Is the market real, follow several defining questions like: Is there a need or desire for the product? Is the size of the potential market adequate? And, Will the customer buy it?

My Advice: A worthy article to read. And worth tracking your innovations to move ahead, while understanding the necessary risk involved.