Keeping Innovative Projects Aligned With Strategy

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Growth-oriented companies that seek to foster a culture of innovation have no shortage of good project ideas. However, many of them will fall outside the control of existing business lines or the organization’s formal structures for managing innovation, such as the R&D department. As a result, potentially valuable programs can suffer from a lack of oversight while others risk misalignment with the company’s strategic priorities.

We’ve seen some innovative companies adopt a mechanism — the portfolio team — for overseeing projects that might otherwise fall between the organizational cracks. The team is made up of senior corporate, strategic, and business managers who identify, monitor, and adjust the mix of projects to ensure that the best ones go forward and remain aligned with the corporate mission.

Dutch health technology company Royal Philips uses portfolio teams across its different businesses to make sure its large number of strategic projects are aligned with its long-term mission “to improve people’s health and well-being through meaningful innovation.” This could include projects that cross business units, such as scaling its website as a destination and e-commerce channel, or early-stage projects, such as piloting new subscription-based business models. New projects are being considered all the time, and existing ones can decline in importance.

Agile, dynamic companies have adopted a variety of ways to come up with promising new projects from both inside and outside the organization, including crowdsourcing, hackathons, pilot projects, or teams developing minimum viable products. Some ideas naturally fall under a company’s formal innovation structure. Departments in charge of R&D, mergers and acquisitions, and venture investments are responsible for long-term projects. Individual business units take on projects with shorter-term horizons and that can be executed inside the units without the need for corporate-level oversight and resources.

The portfolio team, then, is responsible for those projects that fall in between — specifically, those that cross business lines and depend on more than one business unit or those that have a medium-term revenue focus and aren’t expected to generate revenue for two to three years.

While different companies use different names to describe the process, we found in observing about 60 companies that they all share a common set of activities. In this article we describe what their portfolio teams do and how they operate.

Decide what will be prioritized and how much the team can commit to take on. The criteria the portfolio team uses to select and prioritize initiatives differ by company. At Ultimaker, a manufacturer of 3D printers, the portfolio team considers three questions when deciding which projects to pursue. First, “Can it be turned over to an outside partner?” If yes, there’s no need to tie up scarce resources by pursuing it internally. If not, the second question to ask is, “Does it improve the company’s core technology?” And third, “Do its plans and budgets pass muster?” If the answers to the second and third questions are affirmative, the project goes on the company’s road map for implementation.

Philips, in contrast, selects projects based on whether the company can finance them, they have the support of a business segment, the company has the capabilities to carry them out, and they improve the geographic spread of the portfolio.

Even after carefully selecting and prioritizing projects, a company may have more initiatives than it can reasonably support. In those cases, managers should set further limits, either by establishing a maximum number of projects in the portfolio or a maximum budget for them.

Signify, a lighting solutions company spun off from Philips in 2016, caps the number of projects it has underway. Its portfolio team oversees about 20 strategic initiatives spread across five focus areas: customer centered, differentiated offers (brands focused on specific industries), growth and sustainability, digitalization, and “making the company a great place to work.” The areas are stable over time, and projects can be added to or dropped from the portfolio based on performance or market changes.

At Dutch health insurer VGZ, a team whose goals are to encourage online health care and experiment with new ways of contracting with hospitals, sets a maximum budget for the strategic projects in its portfolio.

Decide who needs to be at the table. At the companies we observed, the portfolio teams included C-level executives for their decision-making power, strategy department leaders to help make sure projects fit with other strategic priorities, and representatives from business segments to ensure that projects were carried out.

The portfolio team at Philips comprises eight executives, including members of its executive board (equivalent to a U.S. company’s board of directors), the strategy officer, and various business leaders. At Signify, the team includes the CEO, chief operating officer, CFO, and the chief commercial officer, along with the strategy officer and representatives of various business lines and functions. In the company’s two-tier governance structure, its board of management has final say about its portfolio of strategic projects, and its supervisory board reviews the decisions.

Because the portfolio team is central to a larger process for developing, reviewing, and managing strategic projects, the strategy department and its leader play crucial roles. The department identifies and evaluates potential projects, while the strategy officer translates long-term goals into concrete projects that add up to a coherent portfolio. Strategy department leaders also have to make sure the interests of multiple stakeholders are aligned, by maintaining relations with business leaders, identifying tensions, and discussing possible solutions.

At Philips, the strategy officer sets the agenda for portfolio team meetings, and the department often acts as a counterweight when business units or others promote short-term or other projects that might not be aligned with the larger corporate purpose.

Find the right cadence. Because increasingly agile organizations need rapid decision-making, the companies’ portfolio teams meet fairly frequently. Quarterly meetings are common and are often supplemented by more frequent reviews, but the timing ultimately depends on the rhythm of the individual organization and its business.

The Philips portfolio team, for instance, meets during the annual budget review and once a quarter thereafter. Philips schedules meetings far in advance to make sure all participants can attend and to ensure commitment from busy senior executives. After a few cycles, the process becomes accepted, formats are standardized, and people know what information they need to prepare.

At Signify, the portfolio team meets quarterly to monitor strategic initiatives and several times over the summer to make plans for the coming year. To maintain agility, projects can also be added throughout the year.

At Ultimaker, different business lines operate on different cycles. Designing and building a new 3D printer platform takes about three years, while developing new materials or software usually proceeds at a faster pace. Although the company’s portfolio team meets on a regular schedule, it will review different strategic projects at each meeting based on the initiatives’ individual timetables.

Monitor strategic fit as projects progress. Portfolio teams measure the performance of projects against preset benchmarks, and they continually evaluate how projects fit with the company’s long-term strategic visions. Strategies evolve over time, as can projects; the portfolio team must make sure that the two remain aligned.

At Signify, LED lighting for indoor agriculture began as a promising investment in the company’s venture department and was taken up by the portfolio team. As it grew, the portfolio team regularly evaluated the project to see that it continued to fit with the overall company vision “to unlock the extraordinary potential of light for brighter lives and a better world.” It has since grown into a line of business with firm financial targets.

Some projects can suddenly become more important. When the COVID-19 pandemic caused a surge in demand for disinfection products, Signify — which had already developed ultraviolet lights that could disinfect the air, surfaces, and water — accelerated the development of new products based on the technology and made them a priority in its project portfolio. This underscores the importance of a mechanism like the portfolio team to quickly adapt the mix of projects and take advantage of unexpected opportunities. Without such a team, it might have taken more time to secure funding for further development of this lighting solution.

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In a dynamic environment, projects with a medium-term time horizon play a crucial role in realizing strategic agility. They enable companies to react to and be ahead of changes in the market while working on fulfilling their broader strategic mission. A portfolio team is one way to ensure that the company pursues new ideas that are aligned with strategic priorities and that the portfolio is adjusted to meet changing circumstances. The more dynamic a business environment is, the more important a portfolio team becomes.