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1. Opportunity: a business or technology gap that a company or individual acknowledges between the current situation and an envisioned future in order to capture competitive advantage, respond to a threat, solve a problem, or ameliorate a difficulty.
2. Idea: the most embryonic form of a new solution or service. It often consists of a high-level view of the problem’s preliminary solution identified by the opportunity.
3. Concept: has a well-defined form including both a written and a visual description including its primary feature and customer benefits combined with a broad understanding of the technology needed.9
Many companies still determine which fuzzy front-end initiatives to fund based solely on business unit or divisional stovepiped (isolated) strategies and budgets, fragmented and incomplete assumptions, panic/hype/wishful thinking, and, to a certain extent, the political clout of the initiative’s sponsor. This myopic view of
122 CHAPTER 4 IT PORTFOLIOS AND THEIR CONTENT IN CONTEXT
the enterprise strategy and the lack of the ability to prioritize investments through an IT discovery portfolio often means that potentially valuable opportunities, ideas, and concepts are not funded.
A major challenge faced by companies is not necessarily the ability to introduce sustaining innovation (e.g., incremental improvements, slight modifications and upgrades to existing solutions) but rather to implement a manageable and effective mechanism for introducing a repeatable process for the fuzzy front end of innovations. An enterprise with significant outdated business/technology infrastructures will spend its money on shoring up the cracks, resulting in a portfolio of initiatives slanted heavily toward tweaking the current baseline of investments. This approach creates the danger of obsolescence. Conversely, a hypercompetitive pharmaceutical company may overburden its IT discovery portfolio with potentially high-risk drug discovery initiatives. A balance between both spectrums must be reached.
Since 2000, changing economic conditions, the rise in importance of innovation, and the need for competitive differentiators have permanently altered the expectations of the fuzzy front end. All aspects of research and development have become essential elements to executing the business and strategic objectives and transforming the business. Without the ability and agility to constantly transform the business by creating new and breakthrough IT solutions, reach new markets and geographies, and rapidly gain first mover advantage, companies will have difficulty differentiating their offerings. Innovation and expansion opportunities are critical to growth, driving long-term sustainability and viability. In 1988, 65% of the current companies listed in the S&P 500 list would have been unrecognizable and unfamiliar entities to most investors.10 “In the next 15 years, 75% of the S&P 500 will be composed of companies we don’t know today.”11 Understanding how to transform the business through investment in the discovery portfolio is one of the primary drivers for growth and sustainability.
According to research, innovative companies are valued at 50% higher market capitalization than their peers. In addition, exemplar companies generally outma-neuver their competitors through well-thought-out innovative investments, especially during difficult economic times. In a study of 1,200 companies, McKinsey & Company found that many of today’s industry leaders spent 22% more on R&D than their unsuccessful peers during the 1990—1991 recession. In contrast, the leaders spent just 9% more outside of the recession.12 Intel Corporation spent aggressively during this period, delivering a total return to investors of more than 400% and dramatically outperforming the S&P semiconductor index.13 A July 2003 Business Week article discussed how Intel spent “a staggering 45% of revenues” on R&D activities.14
However, because many innovations in the discovery phase are longer-term, and due to the need to produce short-term results in today’s economy, management is faced with difficult decisions with respect to resource allocation, management attention, and so on. Managers must decide whether to fund short-term,
IT DISCOVERY PORTFOLIO
low-value, incremental projects that have greater predictability from a cost-benefit perspective or invest in long-term, less certain, transformative, higher-risk investments. The evidence for investing in the discovery portfolio is compelling— breakthrough products offer the potential for a 5 times or greater improvement in performance combined with a 30% or greater reduction in costs.15 But failures far exceed successes in innovation, and for risk-averse companies this presents a challenge to securing sufficient resources for the discovery phase. According to Stevens and Burley, every 3,000 unwritten ideas generate 125 written ideas, and only 1 (on average) leads to commercial success.16