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J. Eng. Technol. Manage. xxx (2014) xxx–xxx

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ENGTEC-1407; No. of Pages 17

Contents lists available at ScienceDirect

Journal of Engineering andTechnology Management

journal homepage: www.elsevier.com/locate/jengtecman

Integrating sustainability into innovation projectportfolio management – A strategic perspective

Jacques W. Brook *, Fabrizio Pagnanelli

Maastricht School of Management, P.O. Box 1203, 6201 BE Maastricht, The Netherlands

A R T I C L E I N F O

JEL classification:

C6

C5

M1

O1

O3

Keywords:

Sustainability

Innovation strategies

Product development

Project portfolio management

Decision aid methods

A B S T R A C T

Project portfolio management in relation to innovation has increas-

ingly gained the attention of practitioners and academics during the

last decade. While significant progress has been made in the pursuit of

a process approach to achieve an effective project portfolio manage-

ment, limited attention has been paid to the issue of how to integrate

sustainability into innovation portfolio management decision mak-

ing. The literature is lacking insights on how to manage the innovation

project portfolio throughout the strategic analysis phase to the

monitoring of the portfolio performance in relation to sustainability

during the development phase of projects. This paper presents a 5-

step framework for integrating sustainability in the innovation

project portfolio management process in the field of product

development. The framework can be applied for the management

of a portfolio of three project categories that involve breakthrough

projects, platform projects and derivative projects. It is based on the

assessment of various methods of project evaluation and selection,

and a case analysis in the automotive industry. It enables the

integration of the three dimensions of sustainability into the

innovation project portfolio management process within firms. The

three dimensions of sustainability involve ecological sustainability,

social sustainability and economic sustainability. Another benefit is

enhancing the ability of firms to achieve an effective balance of

investment between the three dimensions of sustainability, taking

the competitive approach of a firm toward the marketplace into

account.

� 2014 Published by Elsevier B.V.

* Corresponding author. Tel.: +31 6 12990878.

E-mail addresses: [email protected] (J.W. Brook), [email protected] (F. Pagnanelli).

Please cite this article in press as: Brook, J.W., Pagnanelli, F., Integrating sustainability intoinnovation project portfolio management – A strategic perspective. J. Eng. Technol. Manage.(2014), http://dx.doi.org/10.1016/j.jengtecman.2013.11.004

0923-4748/$ – see front matter � 2014 Published by Elsevier B.V.

http://dx.doi.org/10.1016/j.jengtecman.2013.11.004


mailto:[email protected]

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J.W. Brook, F. Pagnanelli / Journal of Engineering and Technology Management xxx (2014) xxx–xxx2

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Introduction

The current challenging economic conditions resulted in a drastic slowdown in vehicle sales for theautomotive industry. As a consequence carmakers have pursued radical cost reduction through cuts inproduction and staffing that affect manufacturing plants worldwide. These measures may be helpfulto avoid a rapid deterioration of their financial positions in the short term. However, carmakers needinnovation strategies for growth that enhance their ability to focus their investment on selectiveinnovation projects aimed at tapping into new customer demands constraints by the sustainabilitytrends. This requires an effective project portfolio management that is supportive of suchsustainability driven innovation strategies.

Innovation project portfolio management is a rolling forecast process that consists of allocatingcorporate resources to new product development projects (Roussel et al., 1991; Archer andGhasemzadeh, 1999; Cooper et al., 2001). However, studies have suggested that the strategic side ofinnovation project portfolio management is generally poorly addressed (Archer and Ghasemzadeh,1999; Cooper and Edgett, 2006). This could result, for example, in overcommitted capacities and manyprojects in the portfolio that are strategically irrelevant. During this study, preliminary interviewswere conducted with senior managers of one of the world leaders in the automotive industry,headquartered in Europe. The following problems were identified, associated with characteristics ofweak project portfolio management: (a) non satisfactory decision support tool addressingsustainability issues; (b) lack of appropriate selection criteria for vehicle and power-train innovationprojects in relation to sustainability; (c) difficulty in establishing a methodology for measuring criteriasuch as the ‘‘brand’’, for example; (d) lack of a clearly defined process that deals with the dynamicnature of the demand, constantly reviewing and readapting the portfolio to strategic and tacticalobjectives of the corporation in times of economic uncertainty.

This study builds on various research streams in the literature in relation to sustainability,innovation, strategy, and portfolio management (Bohanec, 1995; Banbury and Mitchell, 1995; Rousselet al., 1991; Ghasemzadeh and Archer, 2000; Archer and Ghasemzadeh, 1999; Cooper et al., 2001;Mcdonough and Spital, 2003; Burgelman et al., 2004; Albright, 2007; Pearce and Robinson, 2007). Wefocus on the development of a framework for integrating sustainability into innovation projectportfolio management in the field of product development. The objectives are to (1) understandcurrent difficulties in using project portfolio management methods to implement a sustainabilitydriven innovation strategy; (2) review the current state of the art on decision aid methods andprioritization techniques of projects in order to select an appropriate combination of methods for theautomotive industry; (3) develop a framework grounded in empirical data to encourage fact-baseddiscussions and decisions (4) develop a tool to test the usability of the framework in order to ensurethe buy-in of the senior management.

The paper is structured as follows. Section ‘‘Global trends driving the sustainability agenda in theautomotive industry presents a brief review of sustainability trends in the automotive industry’’.Section ‘‘Strategic implications of integrating sustainability management of innovation projectportfolio’’ addresses the strategic implications of these sustainability trends for the management ofinnovation project portfolio. Section ‘‘Sustainability driven innovation project evaluation andselection’’ discusses the various innovation project evaluation and selection methods. Section‘‘Methodology’’ presents the proposed framework for integrating sustainability into the different stepsof the innovation project portfolio management process. Section ‘‘The Proposed framework forintegrating sustainability into innovation project portfolio management’’ presents the methodology,and Section ‘‘Conclusion’’ presents the conclusion, including the theoretical as well as the managerialimplications.

Global trends driving the sustainability agenda in the automotive industry

The sustainability agenda of firms in the automotive industry in major geographic or nationalmarkets is increasingly driven by global trends. While the term sustainability has been used in theliterature with different definitions and different content, in this study we have retained the definitionas presented in the sustainability framework by stakeholders in the automotive industry (CARS 21



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report, 2007). Sustainability is defined along three dimensions. It involves ecological sustainability(emission reduction), social sustainability (addressing evolving customer expectations) and economicsustainability (improving competitiveness of the automotive industry). Firms in the automotiveindustry recognize the strategic relevance of global trends (Dannenberg and Burgard, 2007) for theirfuture performance. These global trends have led to the shift of corporate innovation strategies offirms toward sustainability. Some of these global trends involve.

Aging population

Developing cars for a specific group of customers means equipping the cars with design andhandling features that the target group will find useful, exciting and desirable without sacrificing themodel’s overall statement or the brand value.

Increasing urbanization

New car design for highly populated urban areas will involve easy switching between relaxationand driving positions, emphasis on passenger entertainment and information systems, automation ofstop-and-go traffic situations, and nearly zero emission.

Low cost cars

There is an increased awareness that there is a large group of potential customers, the so-calledpoor, in emerging market countries that provide opportunities for creating a new market segment oflow cost cars. While the low cost car innovation was intended for customers in emerging marketcountries, it appears to be attractive for customers in Western countries as well. The current economicdownturn and higher oil prices lead to increased price sensitivity of customers in the global market.Carmakers are focusing on lowering the cost of innovation by tapping into the emerging opportunityto substitute derivatives from petroleum such as conventional plastic with biomaterials. Examples ofthese renewable biomaterials include soy based polymer also called soyfoam and wood fiber polymer.

Transport accounts for nearly 60% of global oil consumption and an estimated 30% of global carbon

emissions

The automotive industry is under pressure to improve its impact on the environment. Transportaccounts for nearly 60% of global oil consumption and an estimated 30% of global carbon emissions.With oil demand projected to grow by 1% per year, reaching 105.2 million barrels per day in 2030, andthe transportation sector being the main driver of this growth, the automotive industry is comingunder mounting pressure to produce low emission vehicles. Therefore, most carmakers are heavilyfocused on developing alternative powertrain technologies to significantly improve the efficiency ofinternal combustion engines, based on new energy sources that include electric, hybrid-electric,hydrogen fuel cells, biodiesel and bioethanol for example.

These global trends provide a broad perspective into changes and some key innovation challengesthat shape the competitive landscape in the automotive industry. One of the main challenges faced byexecutives is how to invest wisely in order to gain the best return for a sustained growth. To addressthis challenge, executives and senior managers should translate the strategic implications of globaltrends into effective innovation project portfolio management.

Strategic implications of integrating sustainability management of innovation project portfolio

In essence, strategic decisions deal with the long term objectives that will positively impact thecompetitive position of the firm in the future (Pearce and Robinson, 2007). But, the short termperformance is crucial to keep the firm in business and to continue to generate the resources that areneeded for future investment. For this reason, when it comes to investing in sustainability driveninnovation projects, executives are generally reluctant, as emphasis is put on long-term opportunities




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based on trends without answering the question of how innovation can help to serve customerssuccessfully in existing markets and to improve the firm’s performance in the short term as well. Thisrefers to the issue of how to balance long-term and short-term investment in innovation (Cooper et al.,2001; Cooper and Edgett, 2006). To address this issue, which is concerned with the strategicimplications of global trends, we first paid attention to the definition of ‘innovation project’, andsecondly to the innovation strategy archetypes that characterize the competitive approach of firmstoward the marketplace.

Three categories of innovation projects can be identified: breakthrough projects, platform projects

and derivative projects (Christensen and Overdorf, 2001; Leifer et al., 2000; Wheelwright and Clark,1992). It is suggested that innovation projects in these categories differ with respect to the degree ofchange in the product or market on the one hand and the degree of change in the technology on theother hand (Wheelwright and Clark, 1992). However, this approach is too limitative for the scope ofinnovation. Global trends suggest the necessity to innovate business models in order to define anddeliver new value propositions that will fit the new customer demands. This means that innovation isalso associated with the degree of change in a broader range of knowledge that includes the businessmodel knowledge area.

In this context a derivative project is based on incremental innovations through reuse of theexisting knowledge to achieve short term business objectives that involves cost reduction,efficiency improvement and customer loyalty. A breakthrough project is defined as applyinghighly specialized and new knowledge that is disruptive with the potential to lead to new marketsand new revenue streams on the long term through radical innovation. A platform project buildson ideas to enhance existing business, by exploiting existing knowledge to significantly expandand grow an existing market (Gawer and Cusumano, 2007). Platform projects are in the middle ofthe so-called innovation continuum, between the breakthrough phase and the derivative phase ofthe evolution cycle of innovation. Platform projects tend to fit the short and medium termobjectives of firms.

Studies suggest the alignment of portfolio management in relation to new product developmentwith the business strategy of the firm (Cooper et al., 2001; Cooper and Edgett, 2006). But, withouttaking the innovation strategy archetype that characterizes the competitive approach of the firmtoward the market into account, one might unsuccessfully try to build the case for funding innovationprojects. The willingness of senior managers and executives to devote a large part of investment tobreakthrough projects depends on the firm’s innovation strategy archetype that reflects the riskpropensity of the firm.

Miles and Snow (1978) have identified four innovation strategy archetypes, a prospector, ananalyser, a defender and a reactor. Other innovation strategy archetypes involve leader and follower(Porter, 1998). Practitioners focus on the analysis of the value chain in the automotive industry, andsuggest a distinction between innovation archetypes of car manufacturers and component suppliers(Dannenberg and Burgard, 2007). Among car manufacturers, innovation archetypes involve Brand

Builders, Fast Follower, Mass-Market Adapter, Architectural Revolutionizer, and Cost and Process Specialist.The innovation archetypes of components suppliers involve amongst others, Radical Innovator;Functional Enricher, Process Champion, and Niche Performer.

The risk propensity that determines the ability of a firm to invest either in breakthrough projects,platform projects or derivative projects can be assessed based on its innovation strategy archetype.Among car manufacturers, for example, a brand builder or a radical innovator is more likely to take highrisk in experimenting with disruptive business models of car design based on new energy and materialsources and will invest significantly in breakthrough projects. A mass-market adapter or anarchitectural revolutionizer on the other hand is more likely to moderately take risk by adaptingexisting business models of car designs and will devote part of its investment to platform projects thatfocus on creating a broader market of sustainable car designs. Cost and process specialists tend to takevery limited risk. It is likely that they will invest significantly in derivatives projects after theproduction cost of cars based on new energy or new material sources has dropped to an acceptablelevel in the industry.

The strategic implications of global trends for the selection and evaluation of innovation projects isrelated to how to achieve an effective balance of the portfolio of innovation projects with respect to




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sustainability along the three dimensions (ecology, society and economic). Key issues that requireattention during the decision making involve:

� U
nderstanding the innovation strategy archetypes of the firm that determine its competitiveapproach toward the marketplace and its risk propensity. � T ranslate the global trends into innovation themes beyond new technologies and new
manufacturing or business processes (Car 21 final report, 2006; Grayson et al., 2008) to addressnew business models in relation to ecological sustainability (emission reduction), socialsustainability (addressing evolving customer expectations) and economic sustainability (improvingcompetitiveness of the automotive industry).
� B alance innovation investment between short-term, medium-term and long-term business
objectives, by splitting financial resources among the three categories of innovation projects thatinclude breakthrough, platform and derivative projects. The balance should reflect the innovationstrategy archetypes that define the competitive approach of the firm toward the marketplace.

Sustainability driven innovation project evaluation and selection

Evaluation – a business case development process

The need for an approach to achieve an effective evaluation of individual innovation projectproposals in the so-called fuzzy front end of innovation has increasingly gained attention in theresearch community (Cooper and Kleinschmidt, 1994; Brown and Eisenhardt, 1995; Khurana andRosenthal, 1998; Koen et al., 2001). The fuzzy front end of innovation is also known as the front end ofnew product development. It involves activities from generating innovation ideas to assessing theirpotential value in the early phase of new product development (Cooper and Kleinschmidt, 1994;Khurana and Rosenthal, 1998). It is characterized by many unknowns regarding the requiredtechnology capability and the commercialization for example. Previous studies suggest that thefoundations for the failure of product innovation often seem to be established at the very beginning ofthe new product development process (Cooper and Kleinschmidt, 1994). This means that theevaluation process of innovation ideas and innovation project proposals in the fuzzy front end isdeterminant for a successful product development. According to Cooper (2001), the outcome of theactivities in the fuzzy front end includes the business case that presents the evaluation of theinnovation idea or the innovation project proposal. The literature review reveals that four major typesof project evaluation decision aid methods can be identified: a discount cash flow method; an optionpricing method; a scoring and checklist method; a probing and learning method (Cooper et al., 2001;Chiesa, 2000).

It is suggested that conventional market research and net present value techniques used infinancial methods, such as discount cash flow and option pricing methods to evaluate breakthroughprojects, generally lead to misleading findings due to the lack of data about a market that yet is toemerge. Scoring and checklist methods based on a qualitative analysis and expert judgment as well asprobing and learning method appear to be more reliable in evaluating breakthrough projects.Financial methods based on net present value and market research are more likely to be suitable inevaluating derivative projects and, to some extent, platform projects, as innovations in these twoproject categories are aimed to serve existing markets with sufficient historical data that increase thelikelihood of a reliable market forecast (Cooper et al., 2001; Chiesa, 2000). Studies have revealed thatthat the success of new product development in many large corporations could be traced back to thecommitment and support of the leadership in long gestation periods (Lynn et al., 1996). In these cases,the persistent support of the leadership was based on the fact that the selected innovation projectsmade strategic sense. It appears that a key requirement of the leadership during the evaluationprocess of innovation ideas in the fuzzy front end is to ensure the strategic fit with the business of thefirm. Koen et al. (2001) suggest that other influencing factors for a successful management of the fuzzyfront end of new product development consist of the assessment of the technology maturity and thedetermination of the acquisition of mode the required technology capability. In this context, it isessential to decide in the early phase whether the firm should pursue an alliance with a third party to




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access the technology from an external source or should focus on internal development to acquire thetechnology capability. The reason is that the impact of managing alliances on the resourcerequirements can change the outcome of the business case of an innovation project dramatically(Wheelwright and Clark, 1992). Companies generally failed to include it in the overall process ofbusiness case development.

While previous studies discussed these evaluation methods, they fell short in explaining whichmethod is suitable for each category of innovation projects. There is not a consensus on which methodis to be used for each category of innovation projects (Cooper et al., 2001). Furthermore, there is a lackof industry specific evaluation criteria such as evaluation criteria for the automotive industry to assistin the developed business case of sustainability driven innovation projects. As a consequence, atheoretical framework for evaluating sustainability driven innovation projects throughout a projectportfolio management process is lacking. In this case, the use of inappropriate project evaluationusually leads to ineffective innovation project portfolio management. For the purpose of this study, thefollowing evaluation criteria for innovation project proposals in the automobile industry weredefined, based on findings from discussions with senior managers of a major car manufacturing firm.We also borrowed from the literature addressing the management of the fuzzy front end of innovationin the field of new product development (Wheelwright and Clark, 1992; Cooper and Kleinschmidt,1994; Brown and Eisenhardt, 1995; Lynn et al., 1996; Khurana and Rosenthal, 1998; Koen et al., 2001;Cooper et al., 2001; Chiesa, 2000):

� S
trategic fit
The project should be congruent with the sustainability agenda as formulated in the corporateinnovation strategy of the firm.
� B rand
The project should reinforce the brand position of the firm in relation to sustainability in themarketplace
� C ustomer orientation
The project should focus on taping into specific customer demands in a specific market segment
� M arket potential
The project will allow an increase of the market share and will generate a large product volume tosupport full capacity utilization of the factories. The market potential also involves the assessment ofthe timing of developing and introducing new models in the market.
� P rofitability
The project has high potential to generate a return on investment within a defined timeframe.
� C O2 emission/biomaterials
The project will contribute in achieving the zero emission target and/or increasing fuel efficiency,based the use of biomaterials
� L everaging or strengthening technology capabilities
The project has the potential to leverage or strengthening the internal technology corecapabilities of the company with regard to sustainability.
� L everaging alliances
The project depends on leveraging external sources of technology through capability strategicalliances.

After the development of the business cases of individual innovation project proposals, the nextchallenge of the innovation project portfolio management process is then to prioritize the projects andselect the most promising ones.

Selection – a prioritization process

The innovation project selection aimed at maximizing the value of the project portfolio within therange of resource constraints (Cooper et al., 2001; Cooper, 2008; Cooper and Edgett, 2009a). It involvessimultaneous comparison of a number of projects in order to arrive at an optimal ranking of the




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projects (Bellman and Zadeh, 1970; Edwards, 1977; Archer and Ghasemzadeh, 1999; Ghasemzadehand Archer, 2000; Buyukozkan and Feyziglu, 2004). The most highly ranked projects under theselection criteria are then selected for the portfolio. Various prioritization methods are available inliterature (Olson, 1996). They involve utility value methods, pairwise comparative methods, andoutranking methods. While studies have suggested that some selection methods might be difficult touse due to the complexity of mathematical programming work, there is a lack of a comparativeoverview of methods using a common set of evaluation parameters. In order to assess the applicationof selection methods, the following evaluation parameters have been defined in collaboration withsenior managers: easy management buy-in, usability in daily business, complexity control, Rankingquality of projects, sustainability with respect to the maintenance of the tool.

The SMART method (Simple Multi-Attribute Rating Technique), based on utility value methodsappeared to have the highest score with respect to the requirement from the user point of view. Anotherfinding is that a combination of SMART and AHP (Analytic Hierarchy Process) yield an effectiveprioritization of projects. In this case, the AHP pairwise comparison method is used to determine theselection criteria weights per innovation project category, and the SMART method, based on a‘‘preference data filtering approach’’, is used to determine the scores attributed to the projects. We foundthat we could easily prototype a selection and prioritization tool based on SMART and AHP pairwisecomparison method in Microsoft Excel. This motivated our decision to use these methods.

Methodology

Research design

Due to the limited number of references available in the literature on a strategic management ofinnovation project portfolio in the automotive industry, and the explorative nature of the study, theselected research design is a case study, which is appropriate for research with a focus on ‘‘how’’ or‘‘why’’ questions (Yin, 2003). Qualitative and quantitative research methods (Brown and Eisenhardt,1995; Bellman and Zadeh, 1970; Edwards, 1977; Dye and Pennypacker, 1999; Ghasemzadeh andArcher, 2000) were used. We selected a large and globally operating car manufacturer. Based onpreliminary interviews with the senior management involved in field of R&D and innovation projectportfolio management, it was established that the firm approach to innovation fit the scope of ourstudy. In particular, the firm is one the pioneers in the field of hybrid powertrain technologies, but alsoin low cost cars, for example. It pursues a innovation strategy aimed at taping into opportunities forgrowth, based on the global trends, driving the sustainability agenda in the automotive industry aspresented in Section ‘‘Global trends driving the sustainability agenda in the automotive industrypresents a brief review of sustainability trends in the automotive industry’’. Senior managementacknowledges that integrating sustainability into innovation portfolio management is one of the keyissue on the strategic agenda of the firm. It was decided to focus the ecologic sustainability oninnovation projects in the field of powertrain technologies in this study and not on other field ofecological of sustainability such material technologies. Moreover, senior managers expressed the needto address how to integrate social sustainability as well as economic sustainability in innovationproject portfolio management in addition to ecological sustainability.

Data collection

The strategic framework presented in this article has emerged from literature review from both theacademic and the practitioner community, and the study of innovation project portfolio managementpractices at the headquarters of one of the world’s large car manufacturers in Europe. The study wasinitiated following discussions with the senior management of the automotive company thathighlighted the need for a framework to assist decision makers in effective alignment of the portfolioof vehicles and power-train innovation projects with corporate strategic objectives in the field ofsustainability along the three dimensions, ecological, social and economic. For this reason, the studyinvestigates how sustainability can be integrated into innovation projects evaluation and selectionprocesses and why.




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Primary data were collected through in-depth interviews with senior managers to investigate thecurrent practices in innovation project portfolio management. The interviews were aimed at settingthe boundaries of the conceptual framework as well as the requirements for decision aid methods forthe innovation projects evaluation and selection. The duration of the interviews varied from 60 to120min. Additional secondary data were collected through internal reports on innovation projectportfolio management, the innovation strategy and the sustainability objectives.

Data analysis

We use combined qualitative and quantitative methods to conduct the empirical analysis in thisstudy. Regarding the qualitative analysis, the outcome of the interviews were transcribed andstructured according to the five steps of the proposed framework in Section ‘‘The Proposed frameworkfor integrating sustainability into innovation project portfolio management’’. The result of theinterviews was submitted to content analysis to establish and summarize the findings. Thequantitative analysis was conducted, using a combination of two decision aid method, the AHP(Analytic Hierarchy Process) technique and the SMART (Simple Multiple Attribute Rating) technique.We developed a prototype of the project selection and prioritization tool in Microsoft Excel, based onAHP and SMART techniques. We used the tool to execute the selection and prioritization process ofinnovation projects in the portfolio.

The proposed framework for integrating sustainability into innovation project portfoliomanagement

The proposed framework for integrating sustainability into innovation project portfolio manage-ment aims at supporting companies in choosing and managing the right set of projects that matchtheir sustainability agenda, based on the corporate innovation strategy. We recognize the need toadopt a differentiated approach to the evaluation of innovation project proposals in the fuzzy frontend of new product development. The different innovation project categories considered in this studyconsist of breakthrough projects, platform projects and derivative projects. The framework allows toevaluate the value creation based on innovation project categories. It also helps to overcomeinefficient resource allocation and ineffective risks mitigation. A well-articulated strategic approach toinnovation portfolio management could contribute in realizing the following benefits for companies:

� P
roviding insight into the trends that drive sustainability and the related innovations that will shapethe future competitive landscape. � F ocussing only on those innovations and knowledge that will help to create value from sustainability
in the short-term and the long-term for customers in the specific market segments in which acompany is operating or intends to operate.
� R esponding with agility to changing customer needs, the alteration of the company’s strategic
direction to fit the market conditions, based on new government regulations; emerging consumerscategories in emerging markets and in developed markets; emerging technologies in areas ofrenewable energy and renewable materials, for example.
� C ollaborating to tape into external knowledge that complements internal technology capabilities in
areas of sustainability.
� Im proving the organization performance through effective translation of the innovation strategy
into execution.
� Im prove the performance of innovation project portfolio management based on a rolling forecast
approach. It helps to continuously adapt the innovation project portfolio. Previously rejectedinnovation project proposals can be reconsidered when a positive business case is developed basedon new data from technology advances or market trends for example.

The framework is structured in steps that involve strategic analysis, the split of resources amongstrategic innovation buckets, the evaluation and mapping of innovation project proposals onto thestrategic innovation buckets, the reprioritization and selection of innovation projects, the




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management of innovation project portfolio over time. The framework is developed based on theanalysis of the portfolio of innovation projects of power trains.

Step 1: Strategic analysis

The integration of sustainability into the innovation project portfolio of the firm starts with thestrategic analysis. In other words, sustainability is not managed as a separate strategic initiativewithin the firm. In this context executives face the challenge to balance strategic priorities related toecological sustainability (emission reduction for example), social sustainability (addressing evolvingcustomer expectations) and economic sustainability (improving competitiveness of the firm in theautomotive industry). We note that ecological sustainability also involves recycling and materialdesign based on renewable sources for example. However, in this study we decided to focus on CO2

emission due to the limited time of our investigation. The strategic analysis for sustainability driveninnovations addresses opportunities and uncertainties related to regulations, technologies, customerorientations, partnerships/alliances and the timing of developing and introducing innovations in themarketplace. As the market for green cars is emerging, the findings suggest that the firm in our casestudy is seeking to develop innovation strategies, aimed at taping into specific needs of consumersalong the three dimensions of sustainability. It appears that by doing so, the firm has shifted itsinnovation strategy from a mass-market orientation to a refocus on niche-markets for sustainableproducts. Ecologic sustainability is pursued by investing in green cars, based on new hybrid andelectric powertrain technologies to significantly reduce carbon emission. Social sustainability ispursued, based on restyling design, upgrading the existing powertrain technologies to focus on needsof customers in specific niche markets such as family, and elderly people, but also cars for big citieswhere traffic conditions pose different challenges as opposed to less populated areas. Senior managersindicated that increased price sensitivity among customers and high competition in the automotiveindustry is putting a huge pressure on the firm’s financial performance. In this context they argue thateconomic sustainability is addressed by focusing on how to leverage existing powertrain technologiesand car design to increase revenue on cash cow products while investing cautiously in new powertraintechnologies for new revenue sources in niche markets. To define the strategic direction fordeveloping a business case for each innovation project idea and the required allocate resources, threecategories of innovation projects were adopted. They involve breakthrough, platform and derivativecategories. They were also called strategic innovation buckets in the portfolio management processwithin the firm. Although the firm is cost oriented, they also invest on high-end products and gainprice premium.

Step 2: Split of resources among strategic innovation buckets

In this step, the major question that senior managers addressed is how to balance the investmenton sustainability driven innovation in such a way that it will yield high return, strengthening thecompetitiveness of the company in the short-term, while creating opportunities to sustaincompetitiveness in the future. The findings reveal that the firm’s innovation fits the archetype ofarchitectural revolutionizer. This provides the motivation for the fact that its innovation strategy islargely dominated by an orientation toward platform projects and derivative projects while investingselectively in breakthrough projects. The findings suggest that the scope of innovation projects in thebreakthrough category involve full hybrid powertrain, new concepts of hybrid/electric powertrain,small electric powertrain and solar powertrain. Innovation projects in the platform category involvesemi-hybrid powertrain technologies for the so-called C-Premium cars (small and large) and largediesel powertrain technologies for C-SUV, for example. Innovation projects in the derivative categoryinvolve mid-diesel powertrain and petrol powertrain technologies. Fig. 1 illustrates the split of theresources among the three strategic innovation buckets as defined within the firm. It appears thatwhile the firm invests on breakthrough projects to develop and experiment with new powertraintechnologies, it is focusing on using platform projects to serve niche markets with high end productsbased on the best mix of ecological, social and economic sustainability. It is expected that currentinnovation projects in the breakthrough category that are essentially oriented toward ecological and



[(Fig._1)TD$FIG]

Fig. 1. Split of resource of an architectural revolutionizer.

Table 1Integrating sustainability into the scope of the project evaluation and mapping.

Breakthrough project Platform project Derivative project

Ecological sustainability Potential to develop

disruptive electric, solar and

full hybrid powertrain

technologies in the field that

lead to significant reduction

of carbon emission

Potential to leverage existing

semi-hybrid powertrain

technologies to efficiently

manufacture new car designs

for a mass market or a niche

market

Potential to improve existing

diesel and petrol powertrain

technologies to reduce

carbon emission as much as

possible

Social sustainability Address the future needs of

customers and contribute to

solve a specific social

problem within 5–10 years

Address existing needs of

customers and contribute to

solving social problem within

1–2 or 3 years

Address existing customer

needs and contribute to

solving social problems

within 6 months and 1 year

Economic sustainability Provide the opportunity to

create and grow a new

market segment within 5–10

years. Focus on long-term

return on investment

Provide the opportunity to

expand existing market

segments of niche market

within 1–2 or 3 years. Focus

on mid-term return on

investment

Provide opportunity to

leverage existing car design

as a cash cow to generate

revenue in a declining market

segment


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social sustainability at experimental stage, will migrate to the platform category when the conditionsfor economic sustainability in the market place will become viable. The innovation projects in thederivative category are oriented toward economic sustainability whereby cash cow projects arecontinuously improved to generate revenue and to strengthen the investment power of the firm.

Step 3: Evaluation and mapping of projects into the strategic innovation buckets

The purpose of the evaluation of sustainability driven innovation projects is to develop a businesscase and derive meaningful judgment on the value of each project proposal that will lead to effectiveselection decisions within the resource boundaries of each strategic innovation bucket. Table 1presents the alignment of the three dimensions of sustainability with the three strategic innovationbuckets that emerged from the findings. As senior managers indicated during the interviews,innovation projects differ in their nature and expected contribution to the firm performance based onsustainability objectives. It was found that the go-or-kill decisions in the different steps of the stagegate process were not appropriate. The senior management took the decision to differentiate theapproach to assess the potential value of innovation projects per strategic innovation bucket orcategory. For example, it was found that with regard to economic sustainability a financial methodusing a discount cash flow based on NPV (Net Present Value) yielded better results for derivativeprojects. This method is also suitable for platforms projects that reuse existing knowledge and productcomponents that are largely adopted in the market.

When a platform aims at expanding the existing market using existing knowledge and productcomponents that are not sufficiently adopted, an option/based model for assessing the return oninvestment appeared to be the best approach.

For breakthrough, a probing and learning method is recommended as the market has yet to emerge.Fig. 2 illustrates the mapping of innovation projects onto the strategic innovation buckets. Most of the



[(Fig._2)TD$FIG]

Fig. 2. Mapping of project proposals onto the strategic innovation buckets.


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innovation projects fits the platform category according to their potential value creation on the threedimension sustainability as defined in this study. Fig. 2 illustrates roughly all innovation projectcandidates per category in a bubble chart. The bigger the bubble, the higher the potential of theinnovation projects to create value along the three dimension of sustainability. The next stepaddresses the (re)prioritization and selection process.

Step 4: (Re)Prioritization and selection of sustainability driven innovation projects

(Re)Prioritization of innovation projects within each strategic innovation bucket was conducted,using the set of selection criteria that involve strategic fit, customer orientation, brand, market potential,

leveraging strategic alliance, reduction of CO2 emission (number of g/km) and leveraging technology

capabilities. These selection criteria were defined by the senior management, responsible forinnovation project portfolio management and R&D. They reflect the attempt of the seniormanagement to balance the selection criteria based on ecological sustainability, social sustainabilityand economic sustainability. The (re)prioritization of new projects and ongoing projects within thethree strategic innovation buckets was performed using the same set of selection criteria. However,the relative importance of each criterion varies and depends on the weights. The weight associatedwith each criterion in the selection criteria hierarchy is calculated using the AHP method. Thepreference data filtering method has been developed in order to bring all scores of the projects under acommon qualitative evaluation scale from 0 to 5. The value of the projects is evaluated through aweighted average technique, SMART, whereby the weights are attributed to the various selectioncriteria. The prioritization of innovation projects is performed within each Strategic innovation Bucketuntil the limits of resources have been reached. At this stage, the balance of the complete portfolio ofinnovation projects can be judged with respect to the strategic objectives of the corporation. Fig. 3gives an overview of the weight per selection criteria.

Within the breakthrough category, the strategic fit criterion is associated with the highest weight.The findings suggest that breakthrough projects that fit the long term goals of the firm have thehighest priority. It appeared that the firm long term goal is to build a strong competitive position in themarket of hybrid cars. The senior management also expects breakthrough projects to have a strongand positive impact on customer orientation, the reduction of CO2 emission, the brand of the firm andthe market potential. It was found that breakthrough projects are expected to contribute to thedevelopment of world class technology capabilities in new generation hybrid technologies and new



[(Fig._3)TD$FIG]

Fig. 3. Distribution of the selection weights per strategic innovation buckets.


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business models that will increase the profitability of the firm in the long term. Within the platformcategory, customer orientation and market potential have the highest weight. Platform projects aimedat growing the market share of the firm. The findings suggest that the senior management pursuesprofitability in the platform category based on high volume rather than high margin on a singleproduct only. The findings suggest that the lower weight of the strategic fit criterion in the platformcategory is based on the fact that platform projects are aimed to executive the mid-term goals of thefirm.

Within the derivative category, profitability and customer orientation have the highest weight.According to the senior management, derivative projects are the so called ‘‘cash cow’’ projects. Theyare expected to generate profit as much as possible from existing products through incrementalinnovation that is focused on immediate customer needs. Fig. 4 illustrates the ranking of innovationprojects per strategic innovation bucket in the portfolio. The breakthrough category presents the topthree projects that emerged from the (re)prioritization and selection process. Innovation projectfocusing on the design of new models of C-Premium cars based on full hybrid powertrain had thehighest score. This project appeared to have the best balance of ecological sustainability (reduction ofCO2 emission), social and economic sustainability. According the senior management, thisbreakthrough innovation project could help the firm enhancing its competitive position in themarket segment of compact cars, also called small family cars in the long term. The secondbreakthrough innovation project in the portfolio aimed at developing new MPV (Multi-PurposeVehicle) hybrid cars in the D-segment of large family cars. The third breakthrough innovation projectconsists of developing new models of sport cars.

The platform category presents the top four platform innovation projects in the portfolio. Theproject that has the best balance of the ecological sustainability, social and economic sustainabilityinvolves the development of a platform model for small hybrid engine in the C-Premium car segment.The second project consists of developing a platform for light commercial vehicles. The third projectfocused on developing a platform for hybrid powertrain for the C-segment. The fourth project involvesthe design of a platform for Entry car. The senior management suggest that these platform innovationprojects are expected to significantly contribute to the growth of the market share of the firm in the C-premium segment and the C-segment of hybrid cars. It was found that platform innovation projectsfocus on leveraging technology capability developed in breakthrough projects. The aim is to scale upthe application of new technology in high volume products.

The derivative category presents the top four incremental innovation projects in the portfolio. Theproject focusing on the upgrade of the 1.0L petrol engine appeared to have the best return oninvestment based on economic sustainability, social and economic sustainability. The second andthird projects aimed at improving existing midsize diesel and small size diesel engine. The fourthproject involves improvements on 1.8L petrol engine. According to the senior management, theseincremental innovation projects are expected to contribute to enhance the profitability of the firmfrom an economic sustainability perspective. These projects also presented interesting cases forimproving the reduction of CO2 emission on current diesel and petrol engines.



[(Fig._4)TD$FIG]

5,04,03,02,01,00,0

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Fig. 4. Ranking of innovation projects within each strategic bucket.

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Step 5: Performance management of the innovation project portfolio over time

The development of innovation project portfolio does not end with the selection and prioritizationof projects. The findings reveal that one of the objectives of the quarterly innovation project portfolioreview was to avoid the problem of overcommitted capacity to innovation projects. The seniormanagement noted that the firm faced many challenges related to overcommitted resources in thepast as employees were allocated to too many projects. The findings suggest that this problem hasbeen solved after an innovation portfolio performance management process was introduced based ona rolling forecast method. Benefit management was identified as a key element of the innovationportfolio performance management process. It focuses on collecting data across different functionalunits to assess the value created by innovation projects in each strategic bucket that includesbreakthrough projects, platform projects and derivative projects. The innovation portfolioperformance management process is designed to coordinate the collection of data about theprogress of ongoing innovation projects in the portfolio. The data collected relate to the burning rate ofresources and achievements with respect to the ecological sustainability, social sustainability andeconomic sustainability. Furthermore, the innovation portfolio performance management process isalso responsible for collecting new project proposals, including market trends and technology trends.They are submitted to the innovation project portfolio board that is responsible for the quartile review.In this context, sustainability was identified in the last ten years as a long term market trend that willhave a significant impact on the innovation strategy and the innovation project portfolio of the firm.The findings reveal that the senior management gradually shifted the scope of the innovation projectportfolio to integrate the three dimensions of sustainability addressed in this study. This provides themotivation for the strategic focus of firm on hybrid powertrain technologies in breakthrough andplatform projects. Step 5 of the framework is completed when project performance data and markettrends as well as technology trends are submitted to the portfolio board. The innovation projectportfolio review starts with step 1 that consists of the strategic analysis. This is followed by step 2, thereview of the split of resources among the strategic buckets. Then the steps 3 and 4 are completedsuccessively. Because the innovation portfolio performance management process is based on a rollingforecast method, it is possible to continuously adapt the data of each innovation project performanceevery quartile. This means that the ranking of projects in the portfolio may change periodically.

Conclusion

Project portfolio management in relation to innovation has increasingly gained the attention ofpractitioners and academics during the last decade (Roussel et al., 1991; Cooper et al., 1999, 2001;Ghasemzadeh and Archer, 2000; Cooper and Edgett, 2006; Archer and Ghasemzadeh, 1999;Mcdonough and Spital, 2003; Burgelman et al., 2004; Albright, 2007; Cooper, 2008). While significantprogress has been made in the pursuit of a process approach to achieve an effective project portfoliomanagement, limited insight has been provided into how to integrate sustainability into innovationportfolio management decision making, and how to manage the sustainability driven innovationproject portfolio throughout the strategic analysis phase to the monitoring of the portfolioperformance during the development phase of projects. From a practitioner point of view, currentstudies fall short in addressing the need of aligning specific industry characteristics of sustainabilitywith innovation project portfolio management solutions to improve the effectiveness of the decisionmaking. This study has sought to address these gaps in the literature by focusing on developing aframework that can be used to assist executive senior managers in the automotive industry instrategic decision-making related to the integration of sustainability into innovation project portfoliomanagement.

Theoretical contribution

Studies (Archer and Ghasemzadeh, 1999; Cooper et al., 2001; Cooper and Edgett, 2006) suggestthat innovation project portfolio is generally poorly aligned with the strategy of the firm. Our studyaddressed this issue by discussing sustainability as part of the innovation strategy of the firm. Our




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proposed framework suggest how to integrate the three dimensions of sustainability (ecological,social and economic) into the different steps of the innovation project portfolio management decisionmaking process in the fuzzy front end of new product development. The framework allows tostructure and manage innovation project portfolio in three categories of sustainability driven projects(breakthrough, platform and derivative). Our findings reveal that innovation strategy archetypesprovide insights into the risk propensity of the firm and can help to understand how much the firm isdisposed to invest in each of the categories of sustainability driven innovation projects. In essence, theinnovation archetypes provide the context to understand how a firm formulates its innovationstrategy that in turn is used to evaluate and select innovation projects. Such an approach gives theopportunity for future research on how to link the competitive strategy of a firm with a strategicmanagement of sustainability driven innovation project portfolios.

The findings also reveal that the current portfolio management framework focuses mainly on thetechnology, process and product dimensions of innovation. Innovation projects are generally limitedin these dimensions, and no attention is paid to other innovation dimensions such as the businessmodel and the organization design dimensions. As a consequence, organizational innovation aimed atdeveloping new organizational capabilities should go hand in hand with new product development.This tends to be overlooked. Based on our findings, we suggest to take a broader view of the knowledgethat is needed to develop an innovation strategy that will be translated into a innovation projectportfolio.

The literature discusses the broad and diverse evaluation methods including financial, optionbased, checklist and scoring methods, to develop business cases of innovation projects. However, abasic set of industry specific evaluation and selection criteria should be defined to provide guidance inapplying these methods for business case development. While profitability is a criterion that appliesvirtually to every industry, CO2 emissions and other criteria are specific to the automobile industry.Emphasizing the focus on defining industry specific evaluation criteria will increase the under-standing of the application of these methods within firms.

Another theoretical contribution concerns the combination of prioritization techniques, followinga comparative assessment of different techniques. It appears that different decision methods areneeded at each step of the project selection process. In this study, the AHP method and the SMARTwere combined to improve the reliability of the prioritization process of the projects.

Managerial implications

Our findings lead to a number of implications for senior managers, involved in the decision-makingof innovation project portfolio management in the fuzzy front end of new product development. Whilethe analysis of global trends provides insight into major changes that will shape the sustainabilityagenda of the firm and the future competitive landscape in the industry, managers should be cautiousin translating global trends into sustainability driven innovation projects. As companies competedifferently, managers should first assess and determine the innovation strategy archetypes of theirfirm before translating the trends into relevant innovation project proposals and then align them withthe business strategies for each market segment. Furthermore, executive and senior managers on astrategic level should communicate the innovation strategy archetypes of the firm to the middlemanagement on a tactical level to allow for a smooth communication about the categories ofinnovation projects that fit the competitive approach of the firm. This approach will reinforce theagility and the collaboration in the innovation project portfolio management process.

In addition, executive and senior managers should extend the scope of innovation projects toinclude not just technology, process and product innovation projects, but also business model andorganizational innovation projects. The reinforcing relationships between technology and businessmodel or between process and organization design, for example, should be exploited to gain a higherreturn on investment in innovation.

Finally, managers should develop and integrate reporting tools that will link strategy information,business case information, project prioritization and selection information as well as the projectexecution information. This will be supportive of an effective innovation project portfoliomanagement.




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Limitations and future research

Our study has led to insights into the process of strategic management of innovation projectportfolio, with a focus on the automotive industry. However, some limitations should be addressed.Firstly, our study is based on a single case study research design. While it allows a small team ofresearchers to focus on a specific case to gain in-depth understanding of the subject underinvestigation, it provides limited ground to generalize the findings. This suggests the need to replicatethe research using a multiple case design in the automotive industry but also in other industries to testand validate the framework.

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