Boston Consulting Group (BCG) research found 63% of corporations will expand the number of projects in their companies' innovation portfolio in 2025, with half saying capability development would be a primary focus.

Anytime innovation teams get backing to kick off new projects is a cause for celebration.

But executing more innovation projects won't necessarily translate to increased revenue, enhanced operations, greater cost savings, or the achievement of other strategic objectives of importance to their companies.

Rather, corporations should execute more-diverse types of innovation initiatives with strategic alignment to the business by allocating resources to long-term innovation activities beyond near-term core improvements.

What’s Driving Innovation Portfolio Diversification

The good news is many enterprises are already increasing their risk tolerance and diversifying their portfolio approach. More to the point, they're broadening the scope of their corporate innovation strategies to by:

• Doubling down on venture funds for their corporate venture capital teams. With several new AI entrants emerging monthly, CVC teams are (rightfully) shifting their focus to potential AI unicorns that can provide financial returns and benefits for their core business (e.g., new insights, audience exposure), with the potential for a merger or acquisition of those companies down the line.

• Expanding their open-innovation ecosystem by entering into new partnerships. Sharing resources with industry-adjacent non-competitors and early-stage startups is enabling corporations to tap into new market data and insights beyond what their R&D teams already bring to the table.

• Assessing the commercial viability of ideas generated by their employees. In their quest to find cost-effective and revenue-generating innovation investments, many corporations are turning to in-house IP and intrapreneurship programs to empower employees to explore commercialization ideas.

What's behind this shift in innovation portfolio management? There are a few key reasons that we've identified.

The Historically Low Corporate Innovation ‘Satisfaction Gap’

The same BCG report above also discovered that less than half (48%) of corporate leaders "felt that their organization made some effort to link their business and innovation strategies." Just 12% of these executives "reported strong links that were delivering real impact."

Managing corporate innovation processes and functions today means ensuring strategic goals inform decision-making as to which initiatives merit consideration and, in turn, resource allocation.

But that doesn't always happen.

Often, it's 'sustaining' innovation programs (i.e., ones tied to the core business) that get the green light for execution. But even if these innovation projects manage to make critical product or service improvements long desired by customers and industry partners, that doesn't mean they'll satisfy executives.

Incremental innovation matters. But embracing some risk tolerance and capital inefficiency to execute on non-core innovation efforts is needed as well.

Put another way? Looking beyond Horizon-1 opportunities offers potential advantages for corporations.

The Copenhagen Institute for Futures Studies (CIFS) recently coined a term — "foresight-driven innovation" — that adeptly explains why innovation portfolio diversification is essential for scaled companies today.

Adopting the approach helps organizations "consider wider-time horizons, strategic interlinkage, and the contextual environment," which, in turn, "helps [them] uncover unmet needs and existing adjacent markets with growth potential," World Economic Forum wrote regarding the CIFS approach.

Translation? Well-managed innovation strategies require a future-forward mindset.

Potential value-add opportunities that extend beyond meeting quarterly revenue targets but still factor in the corporate strategy are worth exploring — even if they may not yield dividends until years later.

The Shifting Views on How M&A and R&D Can Create Value

It's hard to blame corporations for investing heavily in M&A and R&D.

Historically, they provide strong, predictable returns.

"In our current era, R&D and M&A remain the primary tools for driving innovation and growth for large companies," our CEO, Elliott Parker, noted in his book, "The Illusion of Innovation." But he added that, "as primary drivers of breakthrough growth, these approaches are becoming less impactful."

Acquiring new startups — particularly emerging AI ventures that are attracting VC interest and disrupting relevant verticals and sectors — will remain attractive for large companies. As will strategic merger opportunities that can help them weather down economic periods and cope with 'black-swan' events.

But overreliance on R&D and M&A can prevent corporate leaders from recognizing the value of employing other, more cost-effective innovation portfolio options.

"Too many CEOs have fallen into the comfort zone of strategizing with bankers and external advisors, scheming about which company to buy — and neglecting to build their internal capacity for innovation," Khezri Capital Research International CEO and Chairman Bijan Khezri recently wrote for Harvard Business Review.

Elanco, an animal pharma leader, decided to embrace a new form of innovation to address needs its M&A strategy couldn't help with: external venture building. The company wanted to position itself as an agriculture industry convener that brought forth some form of transformative change to its ag partners.

A build program with our team led to the co-creation of Athian, a new addition to Elanco's innovation portfolio that both helps upstream and downstream partners with carbon emissions reduction commitments and offers Elanco an entirely new channel to sell feed additives that reduce cows’ methane output.

A win-win for the corporation, its startup, and its ecosystem partners.

The Increasingly Uncertain Economic and Regulatory Climate

Just 31% of U.S. corporate leaders expressed optimism about the American economy, while only 10% had a positive outlook on the global economy, J.P. Morgan's 2024 Business Leaders Outlook survey found.

Rising inflation and workforce issues accounted for most of these executives' concerns. But add in rapid (and potentially disruptive) changes in the regulatory landscape that have defined the first half of 2025, and it's easy to see why corporate C-suites are worried about the future of their companies and industries.

The good news? Regulatory changes, including deregulation, can actually open up new ways of thinking for scaled businesses across sectors, especially highly regulated industries.

"Sometimes, the unintended consequences that are caused by constraints that new regulations give you make us think more deeply about new models, which is not a bad thing," Lesa Mitchell explained on Advantaged.

That's why some corporations are strategically pivoting their existing business models or creating entirely new ones: to capitalize on opportunities presented by regulatory changes and/or deregulation in areas like the blockchain, privacy, security, banking, and supply chains through new innovation approaches.

Consider Chuck. The Alloy Partners company was created in part because of the sustainability mandates facing general contractors and manufacturers. One solution: Divert the sizable stockpiles of wood waste they generate at each construction site and warehouse facility to power plants run by energy utilities.