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The article is a conceptual review and framework article published in Production and Operations Management. It provides a structured overview of innovation portfolio management research, diagnoses recurring portfolio management challenges, and proposes a framework that shifts attention from project selection to portfolio design. It uses illustrative case examples but does not report a quantitative hypothesis test.
Research question
How should companies manage innovation portfolios so that innovation projects support the organization’s strategic goals rather than merely passing generic project selection criteria?
More specifically, the article asks why existing innovation portfolio management tools have not solved recurring portfolio problems, and whether portfolio management should be reframed from selecting individual projects to designing a strategically coherent portfolio.
Hypotheses
Not specified.
The article is a conceptual review and framework article rather than a quantitative hypothesis-testing study.
Method
The article develops a conceptual argument based on three main sources of evidence.
First, it reviews research and practice-oriented literature on innovation portfolio management. The authors organize prior work into six research streams:
- Knapsack problem approaches;
- Dynamic programming and real option valuation;
- Decision analysis;
- Organization and team approaches;
- Psychology and behavior approaches;
- Qualitative portfolio analysis.
Second, the article reviews documented portfolio management challenges from prior surveys, case studies, literature reviews, and practitioner reports. The examples include Cooper et al.’s survey of 205 companies, Daugherty et al.’s Accenture survey of 1,090 executives across 11 industries, Killen et al.’s survey of 60 Australian organizations, Melis’s survey of 468 industrial practitioners, and Tolonen’s interviews with 47 executives in 10 companies.
Third, the article uses illustrative case material. The opening case describes a Chinese solar thin-film technology company, called B Company, that pursued a new product strategy around embedding lightweight solar thin films into traditional products. The later illustrative case compares three disguised solar energy companies with different strategies, performance profiles, and innovation portfolio designs.
The article does not present a statistical model, regression analysis, or formal empirical test. Its contribution is conceptual: it synthesizes existing approaches and proposes a revised logic for innovation portfolio management.
Results / key findings
The article’s core argument is that innovation portfolio management has focused too much on project selection and not enough on portfolio design. Existing methods often assume that a reasonable list of candidate projects already exists. The authors argue that this assumption is flawed. A portfolio should first be creatively designed to cover the organization’s strategic innovation goals; only then should analytical tools be used to evaluate, adjust, and govern it.
The article identifies six recurring innovation portfolio challenges.
First, companies struggle with strategic alignment. Portfolios often do not clearly reflect company strategy. Prior research cited in the article reports a gap between strategy and execution, including a survey of 1,090 executives across 11 industries finding that innovation investments were not allocated strategically.
Second, portfolios are often imbalanced. Firms tend to include too many incremental projects and too few radical or long-term innovation initiatives. The article cites PDMA evidence showing that between 1994 and 2004, more resources were allocated to small product changes and improvements. The 2012 PDMA survey similarly found that more radical projects were reviewed less often than incremental projects.
Third, project valuation is difficult because information is uncertain and incomplete. The article notes that 44% of respondents in the Tech-Clarity survey reported “back and forth decisions.” This reflects the difficulty of making go/kill decisions under uncertainty and the tendency to keep ideas alive until managers feel they understand the benefits better.
Fourth, firms suffer from portfolio overload. Too many projects compete for limited resources. The opening case illustrates this clearly: B Company spent $300 million annually, about 7% of revenue, over three years on 70 new product development projects. Only five projects were eventually commercialized, and these generated only 5% of total revenue. Senior executives terminated only five projects over the three-year period, and these were mainly project mergers or obvious failures.
Fifth, companies often lack support and buy-in for the portfolio process. The article cites evidence from 47 executive interviews across 10 companies showing that portfolio management was often not clearly described, documented, or understood by all involved. Other studies similarly point to the need for a central, well-communicated, formal process with support from relevant areas and levels of the organization.
Sixth, portfolio governance is often unclear. Ownership, data standards, portfolio definitions, and enforcement mechanisms may be weak. This creates inconsistent interpretations of information and inconsistent project support decisions.
The article then reviews why existing methods help but remain insufficient. Optimization approaches such as knapsack models and dynamic programming can support resource allocation but often become too complex, too rigid, or too dependent on uncertain data. Decision analysis helps compare projects across multiple criteria but often evaluates projects individually rather than as a strategically coherent collection. Organization and team approaches emphasize process, leadership, incentives, and coordination. Psychology and behavior research highlights biases such as salience, short-termism, overconfidence, loss aversion, status competition, groupthink, and relationship-based camps. Qualitative portfolio analysis, such as bubble diagrams and strategic buckets, can support discussion but may rely too much on generic dimensions such as risk versus return.
The article’s main proposal is to separate portfolio design from portfolio evaluation and management. Portfolio design is the creative process of assembling initiatives that cover strategic innovation goals. Portfolio evaluation and management then uses analytical methods to test whether projects meet minimum financial, risk, capacity, and strategic criteria; monitor progress; update decisions; communicate priorities; and maintain stakeholder alignment.
The B Company case shows the consequences of weak portfolio design. The firm’s mission was “powering everything,” but the project portfolio became overloaded with 70 initiatives. Long-term projects such as solar car and solar aircraft initiatives consumed nearly 50% of the total budget for more than three years. At the same time, the shift toward new products reduced support for the traditional solar panel business and contributed to a substantial decline in income.
The three-company solar example illustrates why generic selection criteria are not enough. Company A, founded in 2000, had 2020 revenue of $8.1 billion, profit of $1.3 billion, revenue growth of 57% from 2018 to 2020, and profit growth of 85%. Its strategy centered on technology leadership and high-quality monocrystalline solar panels and cells. Company B, founded in 1994, had revenue of $4 billion, profit of $0.9 billion, revenue growth of 63%, and profit growth of 73%. Its strategy centered on thin-film product applications and the mission “Power anything.” Company C, founded in 2006, had revenue of $5 billion, profit of $0.15 billion, revenue growth of 18%, and profit growth of 93%. Its strategy centered on affordable green electricity and cost leadership.
Because these companies had different strategies, their innovation portfolios should also differ. Company A needed projects supporting technology leadership and performance. Company B needed projects balancing core solar cell and panel technologies with new market applications. Company C needed projects focused on production equipment, factory layout, supply chain efficiency, and process improvement. The authors argue that no standard financial model or generic bubble diagram can generate these portfolios. They must be designed around the specific strategy of each organization.
Practical implications
For managers, the article’s most important message is that innovation portfolio management should start with strategy-specific portfolio design, not generic project ranking.
Managers should first ask what the innovation portfolio must accomplish for the organization. The portfolio should then be built to cover those strategic goals. Only after that should financial evaluation, risk assessment, capacity checks, milestone reviews, and portfolio diagrams be used.
The article warns against assuming that good projects automatically add up to a good portfolio. A collection of individually attractive projects can still fail if it does not cover the firm’s strategic goals, overloads resources, neglects the core business, or creates a portfolio biased toward incremental work.
The opening case provides a concrete warning. B Company invested $300 million annually across 70 projects, but only five were commercialized and they generated only 5% of total revenue. This suggests that portfolio activity is not the same as portfolio effectiveness. More projects, more spending, and more technical activity do not necessarily mean better strategic outcomes.
Managers should also make capacity constraints explicit. The article argues that portfolio overload often occurs because projects enter the portfolio without a clear understanding of available resources. A stronger design process should treat capacity as a hard constraint. If a new project enters, another project may need to end, pause, merge, or reduce scope.
The article also implies that project reviews need real decision power. Reviews should not only monitor progress; they should update the portfolio, release resources, and stop projects with weak prospects. Otherwise, portfolios become crowded with legacy commitments that block more strategically relevant initiatives.
For practitioners, useful diagnostic questions include:
- What strategic innovation goals should the portfolio cover?
- Does each project clearly contribute to one or more of those goals?
- Are important goals missing from the portfolio?
- Are too many resources tied up in projects that are hard to evaluate or unlikely to scale?
- Are project selection criteria customized to the organization’s strategy, or are they generic?
- Does the portfolio protect the core business while exploring future growth?
- Are project reviews strong enough to stop, redirect, or redesign projects?
Theoretical implications
The article contributes to innovation management by reframing innovation portfolio management as a design problem rather than only a selection problem.
Prior research has often emphasized how to evaluate, rank, select, or optimize projects. Si, Kavadias, and Loch argue that these tools are useful but incomplete because they do not create the strategic logic of the portfolio. The article therefore shifts attention to how portfolios are assembled to cover strategic innovation goals.
The article also connects portfolio management to strategy implementation. Innovation portfolios are not just collections of R&D projects; they are mechanisms through which strategy is translated into concrete initiatives and resource commitments.
The article further integrates multiple research streams. Optimization models, dynamic programming, decision analysis, organizational design, behavioral research, and qualitative portfolio tools each address part of the portfolio problem. The authors argue that the field needs a more integrated process in which these tools support portfolio design rather than substitute for it.
The proposed framework also highlights the importance of iteration. Strategy guides portfolio design, but portfolio analysis may reveal capacity limits, risk concentrations, missing capabilities, or unexpected opportunities. This can feed back into strategic goals. Portfolio management is therefore not a one-time selection event but an ongoing design, evaluation, and adjustment process.
Limitations
The article is conceptual and does not empirically test the proposed portfolio design framework.
The illustrative cases are useful for explanation but do not provide broad causal evidence. The three solar company examples use disguised names and numbers for confidentiality.
The article synthesizes prior research but does not present a formal systematic review protocol, such as database search criteria, inclusion rules, exclusion rules, or coding procedures.
The proposed framework needs empirical testing. The authors explicitly state that future research is required to examine what portfolio design processes look like in practice and whether they improve organizational outcomes.
The article focuses on innovation and new product portfolios. Its arguments may apply to other project portfolios, but this is not directly tested.
Future research
Future research could empirically test whether organizations that begin with explicit portfolio design achieve better strategic alignment, resource allocation, and innovation outcomes than organizations that mainly use project selection tools.
Researchers could study what effective portfolio design workshops or senior management portfolio discussions look like in practice.
Future studies could examine which portfolio design criteria work best under different strategic contexts, such as technology leadership, cost leadership, platform strategy, sustainability transformation, or digital transformation.
Another useful research direction would be to investigate how companies prevent portfolio overload and how review processes can release resources from weak projects without creating political resistance.
Researchers could also compare generic portfolio tools with strategy-specific portfolio tools and test whether customized criteria improve portfolio quality, organizational buy-in, and long-term innovation performance.