Organizing for Innovation (and the role of a PMO)
Updated: Jun 21, 2022
Managing your technology project portfolio effectively is one of the most important keys to successful, continuous innovation, and consequently growing any business. In many larger organizations, they often create a Portfolio/Program/Project Management Organization (PMO) to attempt to accomplish this. A PMO sets standards for how change should occur, may manage requests for new features, manage or set priorities for an organization’s technical investments, monitor or manage projects, and provide visibility to work status to leadership and stakeholders. Generally, these are all “good” things from a business perspective—having standardized processes can make projects more reliable and reduce uncertainty for a business.
Very simply: innovation is about creating or implementing new ideas, and almost by definition, new ideas are not “standardized”. In many situations, “how” the idea will be accomplished is not known until significant effort has gone into experimentation. The idea of having technology innovation driven and following the same standardized project management processes that could apply to building a house, freeway, or website inherently limits the ability to truly be innovative.
The primary North Star principle for most PMOs is reliable delivery. To accomplish this, most PMOs will implement a stage-gate process with waterfall-style stage gates: Design, Development, Testing, etc. When each project is measured against those stage gates, the reliability of project delivery should increase, especially if project teams are penalized for missing dates. However, this incentivizes teams to focus on reliable deliver over effectiveness of delivery, and they are more likely to cut features and scope to hit their publicized dates.
Further, innovation projects are most successful when they follow an experiment-based approach against clear hypotheses: “If we do X, it will result in Y,” such as the Lean Startup method of Build, Measure, Learn. These iterative, experiment-based approaches don’t follow a stage-gate process. When you find the right way to solve the problem, the data should show it. It may take many different experiments to get there. If innovation projects are forced to go through a stage-gate process, project team members will typically significantly extend date commitments and reduce scope to give them the most flexibility possible, which is the exact opposite approach you want to encourage.
I saw these issues firsthand at Amazon while managing the global innovation portfolios for groups like Last Mile Technology. In those roles I was often responsible for managing the annual roadmap planning and ideation processes, referred to as OP1/OP2. During that time my teams would receive thousands of ideas from stakeholders globally. Oftentimes ideas conflicted. For example, high-volume/high-cost geographies like the UK always wanted automation to reduce defects and costs, while lower-volume/lower-cost geographies like India typically wanted flexibility and accommodation of innovative ideas they had.
In a PMO-managed environment oriented toward reliable project delivery, the PMO is likely to support projects that are more certain: those with least risk or effort and those with the most likely and quantitative return. When it comes to innovation, this actually has the unintentional effect of filtering out innovative ideas, which are often difficult to judge for complexity and market fit. Once projects were approved, we established a stage-gate process for all projects, and took pride in our ability to deliver on time. We even established a delivery goal: 85% of projects had to be delivered on time. We met that almost every quarter, even though the effectiveness of projects was never addressed.
So how could this have been better, and what do I recommend organizations do today to improve innovation? Below is my recommendation, based on a few innovation-related principles.
Principle #1: If no one has the job of doing something it will not occur reliably.
Principle #2: The goal of innovation is to enable a company’s strategy, and the vision it supports.
Principle #3: Successful innovation should result in measurable returns on the resources a firm expends (e.g., research and development, engineering, etc.).
I often quote this statistic from Deloitte: 96% of innovation projects fail to provide a return on investment. Many other studies have been conducted that are aligned with that – showing around 90%+ failure. So why do companies continue to fail so much at innovation? I think the answer is easy: they have no one assigned to manage it.
As the first Principle states, if you want to create reliable innovation, you have to first assign that responsibility to a person or group! Someone needs to understand how innovation occurs, set the priorities for an organization, facilitate ideation against the right strategic objectives, set up teams to support disruptive efforts, and other related tasks.
The second Principle relates to the company strategy and vision. In many organizations, project ideas are not vetted against any clear strategy, and instead based on the consensus of middle and upper managers based on what their interpretation of current market conditions and stakeholder feedback is. Worse, the project prioritization approach will often change period over period, which disrupts long-term innovation investments. So, to increase innovation, an organization needs to establish a long-term vision and strategy that employees understand and can innovate around.
The third Principle supports the concept of “what gets measured, gets done”. That means someone needs to establish measurements for how innovation activities occur, and how effective they are over time. The minimum measurements that should be in place include total resources invested in innovation, and projects by innovation type and time horizon. With just these three measurements, it is easy to see how well a company is investing for short- and long-term innovation.
To accomplish this, I now recommend replacing the PMO concept with an “Innovation Center of Excellence” (ICE) team to drive innovation across an organization. An ICE team should be fully allocated the responsibility to create an innovative organization, but leave ownership of project delivery to the organizations with the resourcing ownership. The ICE team should be responsible for establishing innovation standards—especially working with leadership to establish an effective vision and strategy for organizations to innovate against. In addition, they should measure innovation effectiveness, drive cross-organizational ideation and goal setting, create and coach new disruptive innovation work teams, and can also be extended to monitor external risks and investment opportunities. Importantly, this creates an intentional structure for innovation, which allows a company to move from organic and heroic innovation efforts, to continual successful innovation. I relate this to the PMO, because there is still a significant effort of Portfolio Management that needs to occur to accomplish this, but it is focused on innovation as the North Star instead of project reliability.
Here’s an example to help illustrate this. At Amazon, most teams look at their resource allocations against general categories such as “Keep the Lights On (KTLO)”, “Product Features or “Geographic Expansion” and they rarely look beyond a one-year horizon. Although that provides interesting information to organizational leaders, it’s hard to see how innovation is occurring if you have 50% effort allocated to “Product Features” as a general category. Instead, imagine if you look at the portfolio and could see how much effort was allocated to “sustainable” innovation that would benefit the business this year, next year, or in 3 years. Or if you could see at a glance that your organization was not invested in any “disruptive” innovation ideas over any timeframe? Wouldn’t this provide better decision-making and resource management?
Hopefully this was helpful in understanding how to increase effectiveness of innovation, and how innovation management relates to the PMO structure. If you have any questions or feedback let me know!