Portfolio Management is about doing the right projects. A portfolio of high-value new product development projects maximizes overall return on innovation investment. When Portfolio Management is properly implemented, occurs regularly, and is conducted well, it positively impacts business results:
- The best projects are selected and advanced based on business merit to produce a steady-stream of winners.
- Resources are optimally allocated to operationalize the Innovation Strategy.
- There is visibility into project prioritization.
- Cross-functional leaders and managers align on the right priorities.
- Projects are sufficiently resourced.
- The new product project pipeline is positioned to maximize return on investment.
The 4 Goals of Portfolio Management
- Maximize the Value of Your New Product Portfolio
The end goal is a portfolio that yields long term profitability and maximizes return on your new product development investment. Resources (capital and people) should be allocated to increase portfolio value. Common methods used include: scoring models, checklists, and financial models.
- Balance Your Portfolio of New Product Projects
Your portfolio of new product projects should include a balance of different project types: long term versus short term projects, high risk versus low risk projects, and projects across various markets and technologies. Common methods used to balance portfolios include visual charts (i.e. bubble diagrams and pie charts).
- Align Your Portfolio with Your Strategy
Strategy becomes real when you spend money. Ensure your Innovation Strategy aligns resource allocation with your strategic priorities. There are 2 ways to approach decision making: a bottom-up approach (project-level decision making at the gates), and a top-down approach (dominated by a portfolio review of all projects). Some companies combine both to achieve success.
- Pick the Right Number of Projects
Resources (people, assets, and capital) are finite. Project delays result when there are too many projects in the pipeline and not enough resources to complete them on time. Selecting the right number of projects to maximize your resources is critical. A common method is to maintain a prioritized list of rank-ordered projects. Another method is to monitor resource supply and demand to determine availability for new product projects.
Portfolio Management: An Opportunity to Impact Innovation Performance
Portfolio management and new product development project prioritization are critical, value-add management activities. Innovation management experts Scott Edgett’s and Robert Cooper’s pioneering work in this area identifies problems that can be attributed to ineffective (or a complete lack) of product portfolio management:
- A Strong Reluctance to Kill Projects
There are no consistent Go/Kill decisions criteria. Projects are simply added to the ‘active list’ of projects with no clear directional focus. Resources are spread too thinly across projects. This results in: longer time-to-market; poor quality of execution, and higher than acceptable failure rates.
- Poor Go/Kill and Project Selection Decisions
There are too many mediocre projects in the pipeline (i.e. extensions, enhancements) and a lack of high value projects. The few good projects are starved of resources, take too long to get to market and fail to achieve results.
- The Wrong Projects are Selected
Decisions are made based on politics, opinion and emotion. Many of these ‘ill-selected’ projects fail to achieve results.
- Strategic Criteria Are Missing
Most projects lack strategic alignment because they are not evaluated or scored on business and innovation strategy criteria. Overall spending does not reflect the business’s strategic priorities because the new product projects selected are a poor fit with the Innovation Strategy.