2025 Portfolio Strategy: Recalibrating Innovation Investments for Exponential Returns
Getting the balance right between moonshots and core product innnovation can feel like an art. The lessons of the past don't match with the returns needed for the current marketplace.
Corporate innovation portfolio management has evolved far beyond the simple heuristic many of us learned years ago. If you're still clinging to the traditional 70/20/10 model (70% core, 20% adjacent, 10% transformational), you're using yesterday's map to navigate today's landscape. The business environment of 2025 demands a more thoughtful and dynamic right-sized approach.
The 70/20/10 Rule: A Starting Point, Not a Destination
When Bansi Nagji and Geoff Tuff introduced the 70/20/10 framework in 2012, they provided a valuable baseline for balancing innovation investments. Their research showed most high-performing companies allocated resources in roughly that pattern. More importantly, they highlighted an inverse relationship between investment and returns: that modest 10% in transformational innovation often generated 70% of returns.
But the model emerged from a different world – one with relatively stable markets, centralized innovation teams, and conservative risk profiles. By 2018, research revealed the average allocation had already shifted to 49/28/23. Market leaders were investing nearly half their innovation resources outside their core. And this was all before ZIRP dramatically changed growth investment across the board.
Cisco Systems demonstrates why this shift was necessary. Had they maintained a hardware-centric 70/20/10 approach, they would have missed the massive shift to cloud and software-defined networking. Instead, they dramatically rebalanced toward software and subscriptions, with approximately 50% core, 30% adjacent, and 20% transformational investments. The result? By 2024, 51% of Cisco's revenue came from subscriptions, driving record growth of 11% for a mature technology giant.
Three Forces Reshaping Innovation Portfolios
Three powerful dynamics are forcing every enterprise to recalibrate their innovation investments:
AI as an acceleration multiplier. AI tools are compressing development cycles and time to market dramatically (GitHub's research shows developers using Copilot complete tasks 55% faster), democratize innovation throughout organizations, and reduce the risk profile of experimentation. This means companies can run more innovation projects concurrently and take bigger swings with less capital.
Take Ping An, which transformed from an insurance company to a technology ecosystem. They invest approximately 1% of revenue ($1B annually) in technology R&D, with a portfolio mix closer to 50/30/20. This funded eleven digital platforms across diverse industries, building a 500-million-user digital ecosystem. AI became central to everything from their insurance core to healthcare platforms to customer acquisition.
Digital go-to-market velocity. The speed at which innovations reach customers has accelerated exponentially. ChatGPT reached 100 million users in just two months. Digital channels enable companies to test and scale at unprecedented speeds. This compressed adoption cycle both enables and necessitates more adjacent and transformational investments.
Walmart exemplifies this dynamic. The pandemic accelerated their digital transformation, doubling e-commerce from 9% to 16% of sales. Their innovation portfolio shifted to approximately 50% core (store operations), 30% adjacent (online and omnichannel), and 20% transformational (healthcare, fintech, automation). This balanced approach helped them compete effectively against digital natives while leveraging their physical footprint.
Small teams with outsized impact. AI-augmented teams operating in decentralized models can now accomplish what only large, centralized R&D departments could achieve previously. This fundamentally changes the economics of innovation.
UnitedHealth Group/Optum embraced this approach, empowering specialized teams to innovate across healthcare services, technology, and analytics. Their adjacent and transformational businesses (under Optum) now exceed their core insurance segment, comprising well over half of UHG's $371B revenue. More importantly, they're growing faster – Optum surged 24% year-over-year while driving 14.6% overall growth for the company.
Portfolio Strategy vs. Execution Tactics
A critical distinction: portfolio allocation (where to invest) is separate from execution approach (how to deliver). Your innovation investment mix is a strategic decision about resource allocation across horizons. How you execute – build, partner, or buy – is a tactical decision based on capabilities, time-to-market needs, and risk profile.
Walmart demonstrates this distinction perfectly. Their strategic decision was to allocate significant resources to e-commerce (an adjacent investment). Tactically, they both acquired capabilities (Jet.com for $3.3B) and built others internally (their Store No.8 incubation arm). Similarly, Ping An built some platforms internally while partnering or acquiring for others, all within their strategic allocation framework.
The execution approach for any initiative should consider:
Existing capabilities vs. capability gaps
Time-to-market requirements
IP ownership importance
Risk tolerance
Market dynamics and competitive threats
Tailoring Your Portfolio to Organizational Context
Your optimal portfolio mix depends heavily on your organization's position. Here's what works for different types of enterprises:
For Market Leaders: Avoid complacency by adopting a more aggressive portfolio mix – something closer to 50/30/20 or 60/25/15. UnitedHealth Group's case demonstrates how market leaders can use their resources to transform adjacent opportunities into new growth engines. Establish protected units for transformational initiatives with different governance and metrics than your core business. Leverage your scale, data, and customer relationships as advantages in new territories.
For Fast Followers: Allocate approximately 20% to a "learning budget" for quickly experimenting with validated trends. Focus your adjacent investments (30-40%) on areas where you can differentiate through superior execution or customer experience, not necessarily original innovation. Use partnerships strategically to accelerate transformational initiatives without building everything internally. Many regional banks have successfully adopted fintech innovations through partnerships while maintaining control of the customer relationship.
For Scale-ups: Maintain a higher proportion of resources in adjacent and transformational initiatives (perhaps 40/30/30) even as you grow. Your advantage is agility – use it to out-innovate incumbents in emerging areas. Prioritize market expansion opportunities that significantly increase your TAM. Implement portfolio discipline early, with clear metrics for innovation impact and regular project reviews to ensure resources flow to the most promising opportunities.
From Theory to Action
To implement a more dynamic innovation portfolio:
Establish quarterly portfolio reviews at the executive level, with the ability to reallocate resources as market conditions change
Create separate funding mechanisms for transformational projects, with different metrics and timelines than core investments
Align your build/partner/buy approach to your strategic priorities, not vice versa
Infuse AI capabilities across all innovation horizons to accelerate development and improve outcomes, including at the board level
Develop metrics that track both financial returns and strategic positioning across your portfolio
The 70/20/10 rule served us well as training wheels. If you aren’t innovating, this is a great place to start. But in today's environment, a more dynamic, context-specific approach to innovation portfolio management is essential for survival. The companies that thrive will be those that continuously recalibrate their innovation investments to match the accelerating pace of change.