Evidence-Based Innovation Portfolio Management:

Incorporating Customer Behavior into Portfolio Decision Making

As discussed in our earlier blog, Evidence-Based Innovation Portfolio Management: Replacing Opinions With Facts, relying solely on spreadsheet projections to guide innovation investment allocation is unreliable in today’s uncertain economic environment. Leading companies have learned to supplement financial projections with customer evidence for more reliable portfolio decisions.

When using evidence of value from customer experiments, portfolio decision makers focus on the viability of the most critical assumptions that drive the numbers in each project’s business case. This brings higher confidence to the numbers, replacing guesswork with facts. To show how companies apply this approach, let’s delve into three examples, each using customer evidence in a different way at different stages in development:

• Medical Device Company: With a mix of physical hardware and software products in an industry with heavy regulatory scrutiny, the company spent six months designing and rolling out a more disciplined portfolio management capability that included customer evidence metrics as part of its project evaluation criteria. After two quarterly portfolio review cycles, the company rebalanced its portfolio, killing projects without sufficient evidence of value and shifting resources toward validated opportunities in high growth markets. Within a year, their risk-adjusted portfolio value has increased by 30%.

• Financial Services Company: Competing in an industry with many small, nimble Fintech challengers and a pace of change that has accelerated, the company relies heavily on its core platforms to stay ahead. Their customers have low switching costs, so they needed to introduce a steady stream of valuable platform enhancements to drive higher usage and to bring new revenue streams. Product teams are learning to run low cost customer experiments and incorporate evidence metrics into daily scrum meetings to help them prioritize their software development backlog and make more informed decisions on release sequencing.

At the portfolio level, the company has focused on improved project selection, using customer evidence to identify the highest value projects worthy of continued funding.

• Pharmaceuticals Company: In the diabetes care division of a large pharmaceuticals company with a mix of hardware, software, and services for disease management, the company’s commercialization teams conducted customer experiments to test sales channel assumptions for a portfolio of recently launched solutions. Insights from these customer experiments were used to optimize marketing spend allocation and awareness generation tactics to scale more effectively.

By incorporating customer evidence in portfolio-decision making, these companies were able to experience more effective portfolio review meetings and replace internal opinions with decisions based on external facts. Long, drawn out debates over project priorities were short-circuited. Discussion now centers around critical assumptions and the evidence the team must uncover to warrant further investment. Instead of asking “When will we see an ROI?,” leaders ask, “What did you learn from the customer about the viability of the solution?”

Want to learn how you can incorporate customer evidence into portfolio decision-making? Download our whitepaper Evidence-Based Innovation Portfolio Management.

And those of you who want to see how your portfolio management capabilities measure up, take this benchmark survey.

By Noel Sobelman