Innovation Portfolio Management

Why companies fail at innovation

The single biggest reason companies fail is not a shortage of ideas, talent, or foresight. According to Gary Hamel, it is because many companies tend to protect “what is” at the expense of “what might be.” Most large companies have decades of operational infrastructure and capabilities organised around extending the current core business. Almost none have equivalent discipline organised around renewing it, the kind of discipline an innovation portfolio is designed to provide.

The gap

What the strategy says vs. where the money goes

Fig. 1 — The disconnect between stated strategy and actual investment.

The pattern is visible in the data. In 2023, 79% of companies ranked innovation among their top three corporate priorities. Few believe their portfolio management practices are mature. When leaders map where innovation spending actually lands, they typically find that 90% to 95% is locked into incremental improvements to the existing business. The public strategy describes the future. The capital is almost entirely committed to the present.

79%

of companies rank innovation among their top three corporate priorities.

90–95%

of innovation spend is locked into incremental improvement of the current core.

38%

of companies rely on explicit metrics for innovation decisions. The rest rely on in-room judgment.

This is not a creativity problem. It is a governance problem, and it is the problem that innovation portfolio management exists to solve.

What an Innovation Portfolio actually is

An innovation portfolio is the full set of investments an organisation has placed on its future: extending the current business, adjacent expansions into new products or markets, and transformational moves that could replace or extend the growth model and sustain success.

It is not a pipeline. A pipeline describes a sequence of projects moving through stages. An innovation portfolio describes how those projects balance against one another as strategic investments and whether that balance reflects the future the company claims to want.

The innovation ambition matrix

Three tiers of strategic investments

Fig. 2 Strategos adapted version of The Innovation Ambition Matrix (Nagji & Tuff). Where to play, mapped against how to win.

Innovation portfolio management is the governance system that determines which investments to make, how much capital each deserves, and when to close the ones no longer earning their place. Without that system, a company has projects, but it does not have a portfolio.

Request our guide to get started with Innovation Portfolio Management

Why most innovation portfolios underperform

When innovation performance disappoints, the conventional response is to generate more ideas in various ways: another accelerator, another innovation lab, another design-thinking sprint. These activities produce options, not allocation discipline. They do not address the harder question of how the organisation chooses between those options, funds the choices it makes, and protects that funding from short-term operational pressures.

There is also a behavioural reason this pattern persists. Short-term, incremental opportunities are the loudest signals within any company. Existing customers are very direct about what they want next (which is not necessarily the same as what they need). Demand is visible, and the financial case for meeting it can be built more easily. The pull towards the core is organic; no one has to argue for it.

Longer-term opportunities work the opposite way. They come from proactively scanning the external environment for emerging trends, technological shifts, and unarticulated needs among current and prospective customers. At the point of the investment decision, they rest on weaker evidence because no customer is asking for them. There is no historical revenue to extrapolate from, and no three-year forecast that will stand up to scrutiny. They are labelled ‘risky’ investments not because they are inherently more likely to fail, but because they cannot be defended with the same kind of data used to justify short-term decisions.

Without a governance system that evaluates long-horizon opportunities on their own terms, they lose every contest within the innovation portfolio.

Three governance failures compound the problem.

Structural separation

Strategy and innovation run as parallel workstreams with different owners, cadences, and metrics. Capital allocation defaults to whoever has the most operating authority in the quarter.

Weak decision discipline

Strategy and innovation run as parallel workstreams with different owners, cadences, and metrics. Capital allocation defaults to whoever has the most operating authority in the quarter.

Inertia

Roughly a third of large companies reallocate less than 1% of their capital and talent year to year. The strategy document is refreshed annually. The spending pattern is not.

The duality principle behind innovation portfolio management

Innovation portfolio management is not an argument for defunding the core. The core generates the revenue that keeps the company alive today and funds the projects of tomorrow; neglecting it damages organisations more quickly than any failure to innovate. The argument is for duality. A company has two permanent obligations: extending the current business and renewing it for the future. Both matter at all times. Most large organisations perform the first with discipline and the second with improvisation.

from ambition to value

Linking strategy and innovation

Fig.3 — Strategy sets the ambition. The innovation portfolio distribution allocates the investment. The funnel turns them into value.

Making that duality explicit and enforceable is the essence of innovation portfolio management; it requires three actions.

Articulate the ambition

Decide how to split innovation investments across core, adjacent, and transformational opportunities — and defend the rationale.

Protect the allocation

Ring-fence capital and talent for adjacent and transformational work. Reallocation should require a board-level decision.

Review and close

Review on a regular cadence. If an investment in an opportunity isn’t delivering the learning or traction it promised, close it and redeploy the freed capital.

The Innovation Ambition Matrix, developed by Bansi Nagji and Geoff Tuff, offers a useful starting point: roughly 70% core, 20% adjacent, 10% transformational. It needs to be adjusted for industry clock speed, strategic position, and a variety of other factors. The exact split matters less than having one and defending its rationale.

A starting point

The 70 / 20 / 10 allocation

Fig. 4 — The Nagji & Tuff 70/20/10 starting point.

How AI is changing Innovation Portfolio Management

The caution is that Artificial Intelligence does not replace governance; it amplifies whatever governance is already in place. Organisations that have built the discipline described above use AI as a co-pilot that sharpens allocation decisions, detects emerging opportunities earlier, and shortens the cycle between strategy and spend. Organisations that have not yet done so still default to funding what is. They simply do it faster, with better dashboards. The companies that gain a genuine advantage from AI in portfolio management, sometimes described as practising “amplified intelligence” where machine analysis is paired with executive judgment, are those that installed governance first and are now using AI to run it at pace.

Portfolio management enables strategic resilience

Companies operating in this discipline build what executives increasingly describe as strategic resilience: the capacity to keep performing in the current business while continuously preparing for and adapting to what comes next. It is a measurable function of how much of the company’s capital, talent, and leadership attention is genuinely connected to the future, and how quickly that connection can be redirected as conditions change.

Four moves for leaders managing an innovation portfolio

For a chief executive or divisional head, the implication is to treat innovation as a governance question rather than a pipeline question. In practice, leading an innovation portfolio requires four moves.

Decide portfolio shape first

Set the shape before funding individual projects so it reflects strategy, not the accumulated legacy of past decisions.

Publish and review the split

Publish the intended split across core, adjacent, and transformational work. Review actual against intended with the same rigour as financial performance.

Establish a single governance body

One executive committee or portfolio council that owns both strategy and innovation decisions — not two forums that never meet.

Measure reallocation rate

Track the percentage of capital and talent shifted from last year’s priorities to this year’s, as an indicator of strategic agility.

None of this requires generating more ideas. It requires aligning capital allocation with stated strategy — and holding leadership accountable when the two diverge.

The organisations that will lead a decade from now will not necessarily be those with the most creative teams. They will be those whose boards and executives have built governance systematically to defend what is, while deliberately funding what might be. Innovation becomes a durable capability — rather than a recurring initiative — only when the innovation portfolio reflects both obligations. That is the work of governance, and it is ultimately the responsibility of the executive team, not the innovation function.

Working with Strategos, we developed and implemented a streamlined innovation portfolio management approach and governance model. Their pragmatic approach and challenging questions helped improve our innovation performance and future-proof our company.