Every firm should have an innovation portfolio. But what's inside of an innovation portfolio? We're going to look at that. And so, as we look at that, we want to ask some questions about why do forms need an innovation portfolio. Because actually a creative culture by itself. You can have a lot of people who are generating ideas but if they're translated into some organized way in a portfolio structure that's not going to be enough. And also, if you have what we call a linear innovation pipeline, that creates a lot of inflexibility and so you want to be able to have Innovative ideas that are ready to go and innovative ideas that maybe aren't ready to go yet but might be ready should the opportunity present itself. And thirdly, you want to have an ongoing chain of internal entrepreneurial activity that is generating new innovative initiatives. If you don't have that ongoing chain of internal entrepreneurial activity, it's not going to trigger new innovative ideas. And so, if we want to look at this notion of Entrepreneurial Events as Triggers, what you have on the left-hand side here is essentially a systematic scanning and looking at what's going on in the external environment and on the right hand side you've got to creative climate. And what you have going on is some project management coming up from the bottom and some activity that's going to cause some change management and creative destruction. And so, internally in the firm you have an entrepreneurial idea, and we call it an entrepreneurial event. And it's a trigger for innovative ideas, and you want to do something with these. And so, if we look at the three forms of innovation. We can say there are core forms where you work on optimizing an existing products and existing work with existing customers and you make improvements. Those are generally speaking incremental improvements. They're good, they're important, they're essential, but they're basic. And then, the next level are what we call adjacent innovations, where you expand beyond the existing business into new to the company business areas and where you're looking at new products and possibly new ideas. And third, and when you think about categories of innovations, they are what we call transformational innovations where you develop breakthroughs and you're investing in things for markets that don't get yet exist. So in other words, you're discovering and creating things for a market that you don't have yet, but you have to now find how are you going to organize each three of these three different innovation forms. And so, let's look at what happens in each of those areas. So we'll look at three different forms of portfolio organization. So if you're looking at the core portfolio and that's core activity, those are what we call refining events. They're efficiency oriented. They improve customer service and customer requirements. And for instance, you can refine logistics to achieve a greater resource use, that's an example of an efficiency. And so, refining events are low risk, and you are using well-known processes. So you're making modest improvements, but they're still innovative. But they're basic. So the next level as we saw in that diagram is the adjacent portfolio organization. Now, adjacent activities are expanding events and they're development oriented. They differ from what was available previously. And they accommodate shifting preference patterns, changing market patterns. And expanding events, they're slightly higher risk, and they require some greater investment than what you had with core portfolio innovations. So a third level is what we call transformation portfolio organization. Transformational activity is actually breakthrough activity. And it's breakthrough activity for markets that you don't know If they exist yet. You have an idea that there might be a market there, but there's not really an identifiable customer base yet. And so, you're really breaking the mold from past results. You're breaking the mold from past products and services. And so, you're going to have a high degree of activity in this portfolio, developing and shaping and building an idea that might be innovative. And so, breakthrough initiatives actually are high risk and they require a high investment, but they have a prospect of very high returns. So if you look at the portfolio pyramid here, on the bottom you see that these are all the activities that are going on, they contribute to the innovation. And then, there's slightly different names to these, but we have an evolutionary, a transformational, and what we call revolutionary. And each of these areas reflect the same three portfolio categories that we had before. And so, what happens is you have to find a way to organize these somehow. And so, a way to think about organizing them is to compose your innovation ideas into portfolios that are either real, what we call real portfolios, where you have what we call downstream thinking. And these are portfolios that contain innovations that have already been launched but need to be improved. We're always looking for ways to improve them. And then, the second category over there is a virtual portfolio, and that virtual portfolio are for the, what we would call the breakthrough ideas, the transformational ideas. And what you need there, that's really where your idea bank is. These are ideas that haven't been completely formed into innovations, but they are potential ideas that have, they have room to grow. And they have potential. And so, those are generally screened and check for feasibility by some kind of a product champion. And so, those are different from the real portfolio of innovation ideas that are actually launched and you're improving those. So for upstream thinking this is where you're looking at your transformational innovations, so you have creative input, and you develop ideas and you're investing in them. So the virtual portfolio is actually draw upon idea banks that are managed by innovation champions. So you got somebody who is really, very broad creative thinker who has, is in touch with the marketplace but who is thinking very, very far out, and very, very far ahead. And so, virtual portfolios, they serve as the long-range part of the organization's innovation strategy. So that's the upstream thinking part. And then, the downstream thinking part is the other half of the portfolio organization, where you have real portfolios that have real innovations, things that you've already implemented and launched, and these projects can be actually the result of an entrepreneurial event as well. And real portfolios draw upon venture team efforts. This is where you have a team that is taking that innovation and making it a reality in the marketplace. And real portfolios actually serve as the operational part of an organization's innovation strategy. It meets marketplace needs, and user needs, and customer needs. It's very basic. And so, the takeaways here about innovation portfolios is that they have to be balanced between virtual and real. And where you have innovations portfolios that are balanced between internal applications for efficiency and external exploitations of the marketplace. You have a good balanced and you have a reasonable opportunity to move ahead and be competitive in the marketplace.
