Innovation Project Portfolio Management: a meta-analysis. Martin Lerch and Patrick Spieth*

Transcription

1 Int. J. Product Development, Vol. 16, No. 1, Innovation Project Portfolio Management: a meta-analysis Martin Lerch and Patrick Spieth* EBS Business School, Department of Innovation Management and Entrepreneurship, Rheingaustr. 1, Oestrich-Winkel, Germany martin.lerch@ebs.edu patrick.spieth@ebs.edu *Corresponding author Abstract: Innovation Project Portfolio Management (IPPM) has gained in importance because companies need a steady stream of successful innovation projects, on the one hand, and an optimal allocation of scarce resources, on the other hand. IPPM helps organisations to allocate resources to new innovation projects and to achieve corporate objectives. Therefore, innovation project portfolios are used to maximise investments value in innovation projects. This paper summarises the current IPPM understanding, identifies current IPPM issues and analyses IPPM s results and empirical research focus. Accordingly, we derive future challenges by identifying factors to be further assessed in research and corporate practice. Keywords: IPPM; innovation project portfolio management; R&D projects; resource planning; portfolio performance; meta-analysis. Reference to this paper should be made as follows: Lerch, M. and Spieth, P. (2012) Innovation Project Portfolio Management: a meta-analysis, Int. J. Product Development, Vol. 16, No. 1, pp Biographical notes: Martin Lerch is research assistant and doctoral candidate at the EBS Business School. His research focusses primarily innovation management, project management and entrepreneurship. Before starting at the EBS Business School he studied International Business at the Munich Business School and the BiTS in Iserlohn. Patrick Spieth is Assistant Professor of Innovation and Aviation Management at the EBS Business School. His major research interests are innovativeness and innovation success, innovation capability in aviation industry, and innovation and corporate governance. He received his Ph.D in 2009 from Kassel University. 1 Innovation Project Portfolio Management s scientific and practical relevance In today s competitive and dynamic environment, firms need to continuously innovate to sustain a competitive advantage and long-term growth (Kester et al., 2011a; Townsend, 2010). Engaging in the right projects is critical for a firm s success and survival (Chao and Kavadias, 2008; Cooper et al., 2001; Hunt and Killen, 2008). Companies, therefore, need to address the question of how to Copyright 2012 Inderscience Enterprises Ltd.

2 78 M. Lerch and P. Spieth most efficiently and effectively invest in innovation projects, and how to compose an innovation project portfolio that enables the realisation of their long-term objectives. At the same time, companies face the scarce resource challenge (Ernst and Lichtenthaler, 2009; Morcos, 2008). Innovation Project Portfolio Management (IPPM) aims at helping companies to overcome this challenge by ensuring the right project proportion in the portfolio with regard to the resources available, aligning projects with the firm s strategy and maintaining a balance between project types (Cooper et al., 1999). According to Stern and Jaberg (2007), the portfolio techniques application increases development projects success rate and helps the company to avoid expensive failures. These are only some reasons for the increasing portfolio methods awareness, as well as more widespread application in practice. IPPM is a rapidly developing field for research and practice (Hunt and Killen, 2008). Literature provides a broad spectrum of portfolio models and theories on how to address the described challenges. Especially authors like Cooper, Edgett, Hunt, Kester, Killen and Kleinschmidt have conducted much research in this field. IPPM s direct practical relevance and its inherent appeal to scientific research are central drivers for the high popularity reflected by a growing number of empirical studies during the last 10 years. Innovation Project Portfolio Management (IPPM) addresses the need for a holistic portfolio perspective rather than focusing on single innovation projects (Hauschildt and Salomo, 2005). IPPM research addresses a wide variety of issues related to IPPM. Two well-known studies in the IPPM field many authors are referring to and building upon are Cooper et al. s (2001) exploratory US study and Killen et al. s study (2006). Both studies identify seven reasons why IPPM is important, namely: for financial reasons to maintain a firm s competitive position to align projects with the firm s strategy to achieve focus and balance to efficiently allocate scarce resources to better communicate priorities within the company to provide greater objectivity in project selection. Further reasons for the importance of IPPM are for example encouragement of systematic project analysis aiding project selection and addressing the challenge of selecting the right project (Mikkola, 2001). Kerka et al. (2009) stress that resources and capacities are frittered away on projects with meagre prospect of success, and that bad project selection decisions and poor prioritisation have developed into a serious problem. Although IPPM s importance has been acknowledged in business science and in practice, most companies are still dissatisfied with their IPPM (McDonough and Spital, 2003). Empirical studies have tried to uncover success factors and critical performance determinants. Furthermore, there exists a variety of scientific work showing which methods are used in practice (Packmohr, 2009). However, most IPPM studies neither do provide empirical evidence on portfolio methods in innovation management s use, nor do they empirically illuminate outcomes and most important success drivers. The prime objective of this literature review is to present a compact summary of the complex and wide-ranging IPPM research and to provide an overview of to date empirical studies in this field. We start by developing a conceptual background based on different findings on definitions and perspectives of IPPM. On the basis of this understanding, we

3 Innovation Project Portfolio Management: a meta-analysis 79 elaborate on IPPM s goals and objectives. Thereafter, we analyse the empirical IPPMrelated literature to find out on what previous research focused, and to uncover success factors. As a result, we derive avenues for further research in this area. This is the first analysis to be published that focuses on these points. However, IPPM-related literature has been summarised and reviewed before (e.g., Killen et al., 2007; Ernst, 2002). Killen et al. (2007) provide insights into project portfolio management related literature from a variety of sources. Though, the contribution to IPPM is limited because the overall story focuses new product development rather than innovation projects in general and the empirical studies analysed miss a clear innovation-management-related focus (e.g., referring to IT projects). Ernst (2002) concentrates on success factors of new product development and reviews empirical literature. Even though his review does not focus on IPPM or innovation projects in general, the importance of IPPM is stressed and some of the studies being relevant of the IPPM field are summarised. So far, most literature related to IPPM focuses only on new product development. The named reviews miss a systematic derivation of future research fields and open research questions in IPPM needed to be answered to further develop IPPM. This is the first up-to-date literature review summarising theoretical and empirical literature s findings, providing insights into empirical findings and deriving a research agenda helping practitioners as well as scientist in focusing future research efforts and in further developing IPPM. 2 Conceptual background IPPM has gained importance in business science and practice, and is seen as a tool that can enhance innovation success (Ernst and Lichtenthaler, 2009). According to Cooper et al. (2000), portfolio management is about resource allocation, project selection and business strategy s operationalisation. Killen et al. (2007) define IPPM as project portfolio management that maximises the project contribution to a firm s success. The modern portfolio management perception is based on the finance theory and on Markowitz s theory (Galloppo, 2010; Markowitz, 1952). Markowitz (1952) divides the process of selecting a portfolio into two stages. The first stage refers to observations, experience and beliefs about the future performance of available securities. The second stage is about the relevant beliefs of the future performance and the choice of the portfolio composition. In the financial area, a portfolio is an investment option s optimal composition in risk and success concerns. According to Markowitz s theory (1952) in a perfect portfolio additional diversification cannot lower the portfolio s risk for a given return. Coming from the financial sector, portfolio management has had an increasingly important industrial application. This is particularly the case with innovation management portfolios (Hsuan and Vepsäläinen, 1999). We use the term projects in this review to refer to single plans with clearly defined goals (Aichele, 2006). Archer and Ghasemzadeh (1999) define projects as complex efforts usually less than three years in duration, made up of interrelated tasks, performed by various organisations, with a well-defined objective, schedule, and budget (Archer and Ghasemzadeh, 1999, p.208). Innovation projects aim to convert an idea into an innovation, and can include every step of the process, starting with idea generation and moving on to idea realisation. Innovation projects develop or improve products, processes and services. This is

4 80 M. Lerch and P. Spieth often initiated to meet customer needs, to achieve strategic goals and to ensure sustainable success (Hunt and Killen, 2008). According to Archer and Ghasemzadeh (1999), an innovation project portfolio is a group of projects that are carried out under the sponsorship and/or management of a particular organisation. These projects compete for scarce resources, such as time, people and money (Archer and Ghasemzadeh 1999, p.208). The term innovation refers to new (tangible or intangible) products or processes. Scholars use different terms when they refer to portfolios in innovation management s context, like, e.g., new product development project portfolio (Killen et al., 2007), innovation portfolio management (Ernst and Lichtenthaler, 2009) or portfolio management of R&D projects. Most approaches refer to tangible or intangible products; others have a more general understanding of innovation projects, which aligns with ours, as mentioned earlier. Owing to the increasing attention that is being placed on portfolio management in innovation management, portfolio management currently has many different definitions. According to Killen et al. (2007, 2005), a widely accepted portfolio management definition for innovation projects is Cooper et al. s (1999): Portfolio management is a dynamic decision process, whereby a business list of active new product (and R&D) projects is constantly updated and revised. In this process, new projects are evaluated, selected and prioritised; existing projects may be accelerated, killed, or de-prioritised; and resources are allocated and reallocated to the active projects. (Cooper et al., 1999, p.335) Hunt and Killen (2008) summarise this definition as follows Project portfolio management is a decision process that oversees the resource allocation and ongoing decisions related to a strategically oriented portfolio of projects (Hunt and Killen, 2008, p.1). These definitions can be applied to all project types, which is apparent from the analysis of a broad variety of literature. In this paper, we use the term Innovation Project Portfolio Management in line with Cooper et al. (1999), Hunt and Killen (2008) and Killen et al. (2007) stating that IPPM is the process of evaluating, selecting and prioritising new or existing innovation projects, according to its main objectives of resource-fit, balance, strategic-alignment and value maximisation. IPPM s goals are value maximisation in terms of long-term profitability, probability of success and return on investment and the right balance of projects, according to high- and low-risk projects, incremental vs. radical innovation projects or projects short-term vs. long-term orientation. Other goals include aligning the project portfolio to the firm s strategy, and ensuring that projects number and type fit with the organisational capacity (Cooper et al., 1997a, 1997b; Cooper and Edgett, 2003; Killen et al., 2006). Value maximisation refers to profitability and probability of success of the composed portfolio as well as to single projects financial success and the project s contribution to company value (Cooper and Edgett, 2003; Girotra et al., 2007). According to Wildemann (2009), the IPPM objective is [ ] to achieve as an ideal combination of future R&Dprojects as possible while maximising (monetary) company benefit for sustainably securing company success (Wildemann, 2009, p.194). IPPM is considered increasingly important for firm s overall value and organisational survival (Girotra et al., 2007; Killen et al., 2006). Balance of projects refers to the portfolio consisting of different project types according to the level of innovativeness, time horizon or level of risk (Cooper et al., 1999). Mikkola (2001) states that a good portfolio balance enables a company to realise its profit and growth

5 Innovation Project Portfolio Management: a meta-analysis 81 objectives without facing high risk and thereby highlight the importance of balancing between different risk levels. Fit with the organisational capacity is reached by balancing available resources with the number of projects (Cooper et al., 1999; Williams, 1969) and is, therefore, closely related to the balance of a portfolio. Innovation project portfolios are necessary, as organisations rarely have enough resources available for the variety of projects they engage in (Hunt and Killen, 2008). Balancing the innovation projects with organisational capacities, IPPM helps in controlling the fast resource consumption throughout the innovation process (Adams et al., 2006). If a company does not manage its innovation portfolio, it can take on too many projects for its available resources, which can result in longer cycle times, poor-quality projects and under performing new products (Cooper et al., 1999). Therefore, IPPM s objectives include allocating adequate resources to the most beneficial projects and adjusting the innovation project portfolio and resource allocation according to environmental changes. Alignment to a firm s strategy refers to the objective of composing a portfolio that reflects the firm s strategy (Cooper and Edgett, 2003; Killen et al., 2006). IPPM s critical success factor is selecting projects that lead to a firm s competitive advantage and increase customer benefit at the same time (Mikkola, 2001). Adams et al. (2006) and Kerka et al. (2009) state that IPPM s effectiveness is directly linked to a firm s competitive advantage. It is important that resources are invested in areas and projects aligned with the business and its customers future needs (Comstock and Sjolseth, 1999). The whole IPPM process of evaluating, selecting and prioritising innovation projects aims at fulfilling these four main objectives. Before composing an innovation project portfolio, an innovation project s strengths, weaknesses, opportunities and threats, as well as costs and the proposed fit with the firm s strategic objectives are identified (Bridges, 2003). IPPM forms the company s future project investment and provides guidance in investing scarce resource. Therefore, IPPM is also responsible for the company s future development (Cooper et al., 1999; Miguel, 2008). Innovation projects compete for the same scarce resources and it is IPPM s duty to address this issue and to allocate resources, minimise risk and complexity, and to compose an innovation project portfolio that fulfils the company s needs (Archer and Ghasemzadeh, 1999; Laslo, 2010; Müller et al., 2008; Stern and Jaberg, 2007). 3 Methodology: meta-analysis Literature contains a broad variety of theoretical and practical studies in the field of IPPM. An analytical review scheme helps in systematically evaluating a given body of literature s contribution (Ginsberg and Venkatraman, 1985). Systematic reviews use an explicit algorithm rather than a heuristic, to perform a search and undertake a critical appraisal of the existing literature. The systematic, transparent and reproducible procedure improves the quality of the literature review process and the outcome (Tranfield et al., 2003). But, this method also comes along with certain challenges: the difficulty of synthesising data from various disciplines, the insufficient representation of books, and the large amounts of material to review (Pittaway et al., 2004). Nevertheless, this methodology can deal with the width and complexity of the IPPM field. Our research follows Tranfield et al. s (2003) three-stage procedure: planning, execution and reporting. During the planning stage, we defined research objectives and

6 82 M. Lerch and P. Spieth identified the key data source. Our objective was intentionally broad and standard for such comprehensive reviews to assess the range of definitional, conceptual, operational and theoretical similarities and differences found in the IPPM research domain. We chose to limit our sources to peer-reviewed journals, which can be considered validated knowledge and are more likely to have the highest impact on the field (Podsakoff et al., 2005). The ISI Web of Knowledge s Social Sciences Citation Index (SSCI) database was chosen as a database of record, as it is one of the most comprehensive databases of peer-reviewed journals in the social sciences. This database s unique citation count feature allows for the selection of a large article pool on the basis of this objective measure of influence. We used all the years that the SSCI database had been available at the time of the research: from 1981 to 2011 (8 December). A systematic review is differentiated from a traditional narrative review by its comprehensive search process (Tranfield et al., 2003). Given the plurality of meanings embedded in the term IIPM and taking into consideration that researchers might have used this term in a variety of ways, we employed a general selection requirement to identify our initial pool and maximise the inclusion of all relevant studies. Our initial search of the SSCI database was undertaken using the basic keyword: innovation portfolio and its derivatives; document type article and review ; language English ; subject area business economics and operations research management science without any additional selection restrictions. This process resulted in a pool of 438 articles. In the next steps, we focused on empirical articles and included empirical articles authors referred to and being relevant for IPPM, but being not included in the SSCI database. By this, we were able to identify a pool of 33 empirical papers in the field of IPPM. 4 Findings Different terms are used to address portfolio management of innovation projects issues. In this paper, we concentrate on theoretical IPPM work, but we also address empirical work. Therefore, we identify innovation portfolio management s success factors and provide an empirical finding overview from literature, as well as the empirical evidence that shows how a portfolio choice influences a company s success. Empirical studies have been published in a variety of journals, including Journal of Product Innovation Management, R&D Management, Research and Technology Management, International Journal of Quality and Reliability, Project Management Journal, Management Science, European Journal of Innovation Management, European Management Journal, International Journal of Project Management, International Journal of Technology Intelligence and Planning, published working papers and also one book. Our literature review summarises these studies research design and focus and thereby provides a structured picture of which research areas in IPPM are covered, and which are not covered. Cooper conducted the first mixed method study in IPPM and has the most publications, but all referring to his US IPPM study (see Table 1). His studies, therefore, play a significant role in IPPM s scientific world. Nearly half of the studies were published within the last five years, highlighting the topic s relevance and actuality, as well as the growing importance of empirical research in the field of IPPM. Six of the analysed articles were published in the Journal of Product Innovation Management. Most of the published studies were conducted

7 Innovation Project Portfolio Management: a meta-analysis 83 in USA. They focus on a variety of industries, including production and service industries. IPPM studies use several methods, including case studies, interviews and questionnaires to answer their research questions. Qualitative research design dominates IPPM research and limits the generalisability and validity of prior research results. Table 1 Literature over view Author Publication Years Research Ahn et al Qualitative Barczak et al Quantitative Center for business Quantitative practices Cooper et al a, 2004b, 2004c, 2001, 2000, 1999, Qualitative and Quantitative 1998, 1997a, 1997b Cooper Qualitative and Quantitative , 1987 Qualitative and Quantitative Cooper and Kleinschmidt Girotra et al Qualitative Herstatt et al a Qualitative Kerka et al Qualitative Kester et al , 2011a, 2011b Qualitative and Quantitative Killen et al , 2008, 2006, 2005 Qualitative and Quantitative Liberatore et al Qualitative Loch Quantitative McDonough and Spital Quantitative Miguel Qualitative Morcos Qualitative Salomo et al Quantitative Völker et al Qualitative and Quantitative Wildemann Quantitative Total* 33 30% published 2008 or later Qualitative: 40 %; Quantitative: 30 %; Mixed: 30 % *Numbers are only referring to the publications and do not reflect the studies conducted in the field of IPPM. E.g., some of Cooper et al. s and Killen et al. s papers refer to one study each. Overall qualitative studies dominate empirical IPPM research. To cope with portfolio and project management s complexity, attention should also be paid to publications in the project or multi-project management field (e.g., Ahn et al., 2009; Archer Ghasemzadeh, 1999; Elonen et al., 2003; Maio et al., 1994; Reyck et al., 2005; Vercellis, 1994). Recent studies published in the International Journal of Project Management and the Project Management Journal were conducted by Reyck et al. (2005), Morris and Jamieson (2005) and Müller et al. (2008). They address portfolio management s goals. Müller et al. (2008) also provide portfolio measures that might be of interest for

8 84 M. Lerch and P. Spieth applying IPPM. Alegre et al. (2006) conducted a survey in which they test product innovation efficiency and efficacy in an effort to discover what makes an innovation project successful. For an overview of other disciplines publications and studies that are related to innovation portfolio management, Killen et al. (2007) provide a detailed review. 4.1 Main themes in empirical literature on IPPM The most comprehensive IPPM study in our literature review was conducted by Cooper et al. (2001, 2000, 1999, 1998, 1997a, 1997b). Their study consisted of three parts: The first part focused on 35 leading firms portfolio management methods. The second part considered 205 businesses and correlated performance results vs. methods used. The third part concentrated on the solutions that 30 companies developed to address portfolio management issues (case study design). The results are complemented by Killen et al. s (2008, 2006, 2005) Australasian study. Killen s study builds on Cooper s work, by adding additional factors to the research and by comparing Cooper s findings in USA with new findings in Australia. Killen et al. (2008) analyse 60 responses from a range of 21 separate industrial classifications. Building upon these studies, Kester et al. (2011a, 2011b, 2009) concentrate on the decision-making process in IPPM. Table 2 summarises addressed research issues and number of publications in this regard. Table 2 Research focus in empirical IPPM literature Addressed research issues Number of (empirical oriented) publications Goals Methods of portfolio management Popularity of methods used (Portfolio) performance indicator Linking methods to portfolio performance Linking portfolio performance 3 9 to company Linking portfolio performance 4 12 to innovation success measures Company performance 4 12 measures Portfolio-Management-Fit 2 6 Number of analysed empirical oriented publications Percentage of articles addressing these (%) 33 Nearly no reasearch on cause and effects of IPPM performance Most of the studies focus on IPPM goals, methods, or performance indicators, either in the theoretical or empirical part. However, empirical evidence on cause and effect of IPPM performance is rare. Only Cooper et al. (2000) and Killen et al. (2005) explicitly link portfolio performance to innovation success measures. Furthermore, only Cooper et al. (1997a, 1997b, 2000) and Kester et al. (2011a) provide evidence that portfolio performance correlates positively with company performance. Therefore, Killen et al. (2008) make a suggestion for

9 Innovation Project Portfolio Management: a meta-analysis 85 future research by saying, The links between PPM methods and outcomes presented in this paper could be further qualified and better understood through further research (Killen et al., 2008, p.34). Killen et al. (2006) suggest that further research should be conducted to fully explain portfolio management s relationships and links to performance indicators. 4.2 Empirical fi ndings on IPPM Barczak et al. (2009) study different industries and find that more or less half of the companies use portfolio methods. Barczak et al. (2009) identify the top three techniques used to compose a firm s IPP projects as rank ordering, discounted cash flow and payback periods. Cooper et al. (2001) state that financial methods are employed most (77%). In terms of use, strategic bucket methods are second, bubble diagrams and portfolio maps third and scoring models fourth. Only 20% of businesses use checklists. Herstatt et al. (2006a) find that companies select projects and compose portfolios by judging the project s originality, the strategy alignment, the alignment with the current product portfolio, its feasibility and financial data. Financial data can include profitability and return metrics, for example (Net Present Value) NPV or (Return On Invest) ROI (Cooper et al., 2001). McDonough and Spital (2003) and Barczak et al. (2009) highlight the importance of reviewing the portfolio. McDonough and Spital (2003) find that quarterly reviewed portfolios perform better than semi-annually reviewed portfolios. More frequent reviews quickly reduce uncertainty about the projects, reduce feedback cycle times and help to intervene in a shorter period of time if projects go wrong or if other projects become more important. The importance of carefully composing a portfolio, which leads to risk reduction, is shown in a case study conducted by Girotra et al. (2007). They prove that project failure can result in high company value loss; therefore, a portfolio perspective is crucial. Loch (2000) also highlights the importance of composing an innovation project portfolio and states that one solution will not be valid for every company. Rather, the portfolio has to be adjusted to each firm s specific needs. Kester et al. (2009) highlight the importance of decision-making processes in the context of IPPM and argue that firms using an integrative approach (quantitative and qualitative criteria in decision making) are more likely to be successful in IPPM in the long run than others. In a quantitative study Kester et al. (2011a), they show that the decision-making process (evidence-based; politically powered; opinion-based) can significantly impact portfolio decision-making effectiveness, which has an impact on IPPM performance. Cooper et al. (1999) and Killen et al. (2006) conduct studies to link portfolio methods to outcome variables portfolio performance and management perception and satisfaction. They measure the management perception and satisfaction with portfolio management methods by using nine variables, including it is a realistic method, it is efficient or method is understood by management. Six key metrics are used for measuring portfolio performance (Killen et al., 2006; Cooper et al., 1999). According to the main objectives, performance is determined by the projects alignment with a firm s strategy, the high value of projects in the portfolio, the balance of projects, a good alignment of projects to the resources available, spending in line with the business strategy and the number of projects that are delivered on time. Killen et al. (2006) add additional metrics to evaluate portfolio tools. These metrics evaluate how the tools encompass new markets access, as well as technological capabilities development. To evaluate the innovation portfolio outcomes, they investigate the percentage of new products that were launched successfully, as well as the percentage of new product projects that receive significant funding that were successful. To assess if projects were successful, Herstatt et al. (2006b) evaluate the achievement of objectives in terms of profit

10 86 M. Lerch and P. Spieth level, sales volume, market share, competitive advantage and customer satisfaction. Alegre et al. (2006) measure product innovation performance according to two dimensions: efficiency (e.g., average innovation project time and average cost per innovation project) and efficacy (e.g., opening of new markets abroad, product range extension within a main product field through technologically new products). They use 11 items to measure the two dimensions. Ernst provides a detailed review on innovation projects success factors and new products empirical literature (Ernst, 2002). To identify the most effective portfolio method, Cooper et al. (1999, 2001) benchmark companies that are performing well with companies that are performing badly. However, Cooper et al. (1999, p.351) state that Effective portfolio management in new product and R&D management remains an elusive goal. They also highlight the importance of continuing to look for the right portfolio methods. 4.3 IPPM methods Portfolio management uses a variety of techniques in composing an innovation project portfolio. Mikkola (2001) states that portfolio techniques are powerful tools in that they allow products and R&D projects to be analysed in a systematic manner, providing an opportunity for the optimisation of a company s long-term growth and profitability. (Mikkola, 2001, p.423) Literature and practice outline many different IPPM methods. Although most companies acknowledge IPPM s importance, very few are satisfied with their current IPPM (McDonough and Spital, 2003). According to Cooper and Killen s studies, we conclude that there is no single IPPM method in use. In fact, most companies use several methods concurrently. Examples of financial portfolio methods (that are mathematically oriented indices) that are being used are NPV and (Internal Rate of Return) IRR (Cooper et al., 1999; Souder, 1973). Tolga (2008) addresses the project selection challenge by providing an options valuation model. In strategic methods, such as the strategic bucket approach, the strategic direction determines the resource allocation (Chao and Kavadias, 2008; Cooper et al., 1999; Englund and Graham, 1999). Scoring models use different criteria, for example the innovation level, the technical challenges and the financial expectations (e.g., revenue, price and costs) to evaluate innovation projects and to prioritise them (Miguel, 2008). Checklists, similar to scoring models, can make use of Yes/No -questions, as well as scales similar to those used in scoring models (Cooper et al., 1999; Stern and Jaberg, 2007). Table 3 presents some well-known portfolio models often used for visualisation of innovation projects and referred to in science and practice. Table 3 Overview of commonly used portfolios in innovation management Portfolio Authors Technology advantage/customer benefit portfolio Hsuan and Vepsäläinen (1999), Mikkola (2001) Technology and market portfolio Stern and Jaberg (2007) Technology portfolio by Pfeiffer Pfeiffer and Weiß (1994) Risk-Reward-bubble-diagram Cooper et al. (1998), Geßner (2009) Dynamic markets, technology and ecology Hahn (2006) portfolio Technology portfolio St. Gallen Gassmann et al. (2008) Strategic BCG-Matrix Harland (2009) Chao and Kavadias (2008), Cooper et al. (1999)

11 Innovation Project Portfolio Management: a meta-analysis 87 To cope with increasing complexity and scarce resource challenges, many portfolios focus on projects technological fit. Portfolios are often set up using two dimensions, but each dimension can comprise several criteria. For example, Pfeiffer suggests evaluating (technology) projects by the dimension technology s attractiveness and resource strengths. Thereafter, projects can be placed in a portfolio and strategic recommendations concerning investing or not investing can be made (Pfeiffer and Weiß, 1994). The reviewed portfolios are used to analyse products, technologies, processes and whole market segments. Killen et al. (2006) find that strategic methods and portfolio maps have the strongest positive influence on several aspects of portfolio performance, and that financial methods only correlate positively with one portfolio performance measure (strategic alignment). Owing to a study by Cooper et al. (1998), the most preferred bubble diagram is the riskreward-diagram. Other possible axes for bubble diagrams are costs and timing, ease and attractiveness, or costs and benefits (Cooper et al., 1998). In the literature, prioritising and allocating internal resources on innovation projects are often seen as portfolio management s key challenges (e.g., Bridges, 2003; Foxall, 1983; Morcos, 2008; Laslo, 2010; Verona, 1999). According to Hunt and Killen (2008), portfolio management is required for effective resource allocation to newly proposed projects, as well as to decide whether projects should accelerate, de-prioritise, or cancel existing projects (compare also: Baker and Freeland, 1975). Cooper and Edgett (2003) state that resource deficiencies and misallocations are the root cause for poor innovation project performance and lead to long time to markets, weak launches, missed opportunities and a large, ineffective number of small projects. The variety of techniques and solutions that we outline can help companies to deal with these issues. However, practitioners are not satisfied with current IPPM methods and literature asks for further research being conducted in this important field of innovation management (Cooper et al., 1999; Killen et al., 2005, 2007; Mikkola, 2001; Müller, 2008; Ernst and Lichtenthaler, 2009). 5 Future challenges for practitioners and academics The reviewed empirical studies show that IPPM influences innovation management s performance and can significantly impact new innovation projects success by developing time and strategy alignment, reducing failure rates, as well as increasing the project s quality and results. Nevertheless, empirical as well as theoretical papers leave some questions unanswered, which present future challenges and actions for both academics and practitioners. Additionally, continuous research on IPPM is necessary because [ ] both the competitive and internal environments in which firms operate evolve over time. In response, management processes must also change over time so that firms can remain effective and profitable through the changing situation. (Barczak et al., 2009, p.23). 5.1 Challenge 1: Determinants of IPPM performance Adams et al. (2006) state that a company can optimise its resource allocation by using a systematic process with clearly defined criteria. Killen et al. (2006) suggest that further research be done on the relationship between the methods and criteria used and the

12 88 M. Lerch and P. Spieth performance results. Providing a deeper understanding of how existing methods relate to the fulfilment of IPPM objectives can help firms to achieve their objectives (Coulon et al., 2009). According to Chao and Kavadias (2008), who built a theoretical framework for managing a new product development portfolio, future research must also focus on performance measurements. They state that [ ] questions still remain with respect to the performance functions for each of the technology and market attributes [ ] (Chao and Kavadias, 2008, p.920). Even though Cooper et al. (1997a, 1997b, 1998, 1999, 2000, 2001) and Killen et al. (2005, 2006, 2008) have studied the links between methods and performance measures, Killen et al. (2008, p.34) state that [ ] links between PPM methods and outcomes [ ] could be further qualified and better understood through further research. In addition to the methods itself, future research should also focus on how these methods are applied and practised, as this more process oriented elements seem to have been neglected or not fully understood by prior IPPM research. In their study, Cooper et al. (1999) delivered first insights into the role of IPPM s explicitness and formality and argue that well-performing companies have a highly formalised portfolio approach. But as stated by Killen et al. (2007), other findings show that a more formal IPPM process is not necessarily the best approach. Therefore, we argue that future research needs to identify the most important determinants of IPPM in the first step and then understand how these are linked to IPPM performance. 5.2 Challenge 2: IPPM Performance s impact on a fi rm s performance Innovation project portfolios are an important determinant of a firm s innovation management effectiveness (Szakonyi, 1994a, 1994b). According to Kahn et al. (2006), portfolios are necessary for establishing a successful innovation process. Furthermore, using a fixed set of project evaluation criteria and standardised performance measurements can be beneficial to a firm s innovation management. Some authors state that IPPM effectiveness has an impact on the firm s competitiveness (Adams et al., 2006; Chao and Kavadias, 2008; Hall and Nauda, 1990; Wildemann, 2009). Wildemann (2009) stresses the IPPM s importance for maximising a company s profit contribution. Nevertheless, there is very little empirical evidence available on this relationship. Therefore, this important IPPM field should be researched more comprehensively. Future research also needs to determine if IPPM has an indirect impact on a firm s performance by affecting the success of innovation projects (Killen et al., 2005). 5.3 Challenge 3: IPPM methods Archer and Ghasemzadeh (1999) conclude in their paper on IPPM that further research should focus on determining which modelling techniques are preferred in practice, and on how to simplify existing techniques to make them more acceptable. Ernst and Lichtenthaler (2009, p.116) state that further research is necessary to offer a better understanding to firms aiming at maximising their benefits from innovation by means of proficient innovation portfolio management. Mikkola (2001) sees choosing the best technique, and especially selecting variables and sound indicators that can assess projects appropriately, as portfolio management s main challenge. Prior research is missing adequate methods for addressing the current challenges, because there does not exist valid empirical evidence on which methods are most beneficial in reaching high IPPM methods. Therefore, literature questions

13 Innovation Project Portfolio Management: a meta-analysis 89 for further research aim at identifying or developing methods to better balance projects with available resources (Killen et al., 2007). Our analysis of studies uncovers the need for research in measuring portfolio performance and in linking it to innovation success measures and company performance measures. Firms experience of applying portfolio methods should be analysed so that they can determine which portfolio dimensions and methods lead to success. Even though Cooper et al. and Killen et al. conducted a fairly comprehensive study, Killen suggests that further research be done to confirm the results: However, keeping in mind the size of the data sample and the diverse range of industries represented, further research in either Australasia or North America will be required to more fully understand the relationship. (Killen et al., 2006, p.9) There is also a need for cross-industrial national and international studies. Ernst and Lichtenthaler (2009, p.116) highlight [ ] the need for further empirical research into innovation portfolio management. Here, qualitative, quantitative, and mixed method studies may be helpful in light of the limitations of prior empirical research into innovation portfolio management. Because prior IPPM research is primarily atheoretical, future studies could also focus on the theoretical background of IPPM (Killen and Hunt, 2010). Coming from a resource-based or dynamic-capability-based perspective could potentially help in addressing the question how IPPM capabilities can be useful for managing resources and reaching competitive advantages (Barreto, 2010; Killen and Hunt, 2010; Verona, 1999). 6 Conclusion This literature review provides a comprehensive overview of current IPPM literature. We define the term IPPM in line with our literature analyses, and we highlight IPPM s importance in business science and in practice. Even though the importance of IPPM has been realised, IPPM research is widely spread and was missing a systematic and comprehensive summary providing insights into prior research results as well as guidance for future research. Our paper addressed this research gap and based on an analysis of theoretical and empirical literature we derived three major challenges for future research. Empirical research confirms the importance of IPPM, the shortcomings and the dissatisfaction of scientists and practitioners with current IPPM methods (e.g., Cooper et al., 1999; Killen et al.; 2006). On the basis of learning from literature, we argue that IPPM is needed to cope with challenges companies in a dynamic and competitive environment are facing, like, e.g., reaching competitive advantages and conducting innovation projects whilst facing the scarce resources challenge. To address the named challenges, future research should focus on the questions of what drives IPPM performance, in order to learn about the most important determinants affecting IPPM performance e.g., methods, or process elements like formality (challenge 1); how IPPM performance is linked to firm performance, in order to provide evidence on the importance of IPPM (challenge 2) how IPPM methods have to look like in order to appropriately address the identified challenges (challenge 3).

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