Here is an excerpt from an article written by Ard-Pieter de Man, Anna Plotnikova, and Ludwig Hoeksema for the MIT Sloan Management Review here.

Illustration Credit:  Carolyn Geason-Beissel/MIT SMR | Getty Images

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Innovative companies have no shortage of ideas for new initiatives. How do they ensure that projects serve strategic ends?

Growth-oriented companies that seek to foster a culture of innovation have no shortage of good project ideas. However, many of them will fall outside the control of existing business lines or the organization’s formal structures for managing innovation, such as the R&D department. As a result, potentially valuable programs can suffer from a lack of oversight while others risk misalignment with the company’s strategic priorities.

We’ve seen some innovative companies adopt a mechanism — the portfolio team — for overseeing projects that might otherwise fall between the organizational cracks. The team is made up of senior corporate, strategic, and business managers who identify, monitor, and adjust the mix of projects to ensure that the best ones go forward and remain aligned with the corporate mission.

Dutch health technology company Royal Philips uses portfolio teams across its different businesses to make sure its large number of strategic projects are aligned with its long-term mission “to improve people’s health and well-being through meaningful innovation.” This could include projects that cross business units, such as scaling its website as a destination and e-commerce channel, or early-stage projects, such as piloting new subscription-based business models. New projects are being considered all the time, and existing ones can decline in importance.

Agile, dynamic companies have adopted a variety of ways to come up with promising new projects from both inside and outside the organization, including crowdsourcing, hackathons, pilot projects, or teams developing minimum viable products. Some ideas naturally fall under a company’s formal innovation structure. Departments in charge of R&D, mergers and acquisitions, and venture investments are responsible for long-term projects. Individual business units take on projects with shorter-term horizons and that can be executed inside the units without the need for corporate-level oversight and resources.

The portfolio team, then, is responsible for those projects that fall in between — specifically, those that cross business lines and depend on more than one business unit or those that have a medium-term revenue focus and aren’t expected to generate revenue for two to three years.

While different companies use different names to describe the process, we found in observing about 60 companies that they all share a common set of activities. In this article we describe what their portfolio teams do and how they operate.

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Here is a direct link to the complete article.

Ard-Pieter de Man is a professor, Anna Plotnikova is an assistant professor, and Ludwig Hoeksema is an associate professor at Vrije Universiteit Amsterdam’s School of Business and Economics.