“Don’t put all your eggs in one basket” is a common adage highlighted in many, if not in all, financial and microeconomics textbooks. Rather than putting big amounts of money in one place, it is advisable to build a varied portfolio of several investments so as to spread risks. Yet, the variety of projects should be diverse, not just having multiple projects.
The idea to reduce idiosyncratic risks through diversification, could also apply to the process of innovation as an activity that requires resources, effort, time and management. Innovation implies high levels of uncertainty – the outcomes are difficult to predict and success is not guaranteed. Given the context of social and political accountability, governments are constrained to try something new. Nonetheless, the rapid development of information technology is calling to adapt more effectively to the dynamic circumstances in which they operate. There is a need to create space for innovation to happen. It is not just about having a brilliant idea, but it is needed to go beyond the business-as-usual approach by creating space for exploration and trial of new views and practices. In this sense, innovation is closely connected to experimentation, which often implies failure in the process. Organisations should be able to assess different performance approaches and based on the results proceed to evaluate if the new idea should be directly adopted, adapted or revoked.
When an organisation needs to address challenges that entail significant levels of uncertainty, a provisional approach would be required, as there is a need to reflect on their viability before heavily committing to certain idea or project. Public sector organisations would often benefit from hedging their bets and allow space for discovery and exploration. The authors of “The Innovator’ DNA” – Jeff Dyer, Hal Gregersen and Clay Christensen – build on the idea of disruptive innovation to outline the discovery skills that distinguish good managers. The characteristics of successful innovators require strong discovery skills – i.e., developing multiple ideas to manage uncertain situations:
- The ability to draw connections between seemingly disparate ideas and contexts
- A tendency to question assumptions and status quo
- A habit of looking at what is contributing to a problem before rushing to a solution
- The frequent use of systematic experimentation to prove hypotheses about the cause and effect
- The ability to network and broaden a set of relationships, even without an intentional purpose.
The current knowledge about the role of innovation portfolio management originates mainly from private sector organisation theory. The concept of portfolio management refers to a dynamic decision-making process of coordinating diverse organisational activities by prioritising projects and efficiently allocating resources to achieve organisational objective and goals. This idea is not directly replicable in the public sector given the different contexts in which it operates, however, it could inspire novel practices.
The innovation portfolio approach in the public sector context
In the public sector, the innovation portfolio management is proposed as an approach to a more wide-ranging and effective innovation process. Instead of handling projects individually and following previously defined project goals, a portfolio of projects will enhance the communication, the cross-learning, and the exploration of new concepts. This entails managing an extensive set of activities whereby new ideas are discovered, reviewed, prioritised, and executed with resources allocated to the most promising projects. Innovation portfolios also allow to spread risks by diversifying innovation investment activities. It acknowledges that there is no one-size-fits-all approach to innovation, and requires the innovation process to be continuously tracked, assessed and explored to be fit for purpose.
In a nutshell, the portfolio approach can navigate the innovation efforts towards a clearly defined strategy or mission, (1) to optimise resource allocation and provide strategic focus to all activities, (2) to spread risk among activities, (3) to better coordinate the innovation efforts, (4) to create space for sensemaking, and develop mechanisms to generate new knowledge through collaboration in an ecosystem environment, (5) to assess the outcomes and avoid that services are defined by ad-hoc organisational needs, but rather by a shared vision on the institutional objectives. Thus, innovation portfolios enable a more holistic rather than narrow view of the innovation efforts, which would suppose a shift in the current vision of the process – from perceiving innovation as an isolated activity to seeing in as part of the whole organisational structure.
To provide an overview on the current organisational portfolio, the OECD Observatory of Public Sector Innovation (OPSI) developed the Portfolio Exploration Tool (PET). It provides a self-guided digital tool to facilitate the exploration of innovation trends and the capabilities of public sector organisations to innovate following the portfolio approach. The tool also ensures a multi-faceted approach to innovation by assessing the focus of the innovation activities and by finding gaps in other relevant areas (e.g., exploration-exploitation activities). Moreover, the PET is assessing the existence of systemic and structured innovation efforts, through portfolio management functions.
The United Nations Development Programme, in line with the UN Strategy Plan 2022-2025, explored the portfolio design and management approach to build resilience, to produce systems transformation in situations of high uncertainty and to design policies for complex and multifaced challenges. In March 2022, the UNDP published a “System Change: A Guidebook for Adopting Portfolio Approaches” to support policy makers towards that aim. Similarly, the European Institute of Innovation & Technology (EIT) ´s Knowledge and Innovation Community (Climate KIC), suggested harnessing the portfolio approach in its 2019-2022 strategy: “Transformation, in time” as a way to make systems transformation happen, while mitigating risks.
The innovation portfolio approach has thus been analysed from different perspectives, yet it is still an emerging topic in the public sector context and there is a limited amount of publicly available insights on good practices. We at EFIS Centre are keen to explore and collaborate together with other partners and practitioners how to further contribute to the developments of the concept of the innovation portfolio approach in the public sector.