Why portfolio management is important

introduction

Innovation is needed to survive as a company in the long term. Technologies are changing faster and faster, the market is becoming more open and competition is increasing. Against this background, it is increasingly important to have an effective new product development process. This process runs from the stimulation of ideas to the retrospective evaluation of a launched product. Portfolio management is a vital part of this. Good Portfolio Management ensures that you know which projects are scarce Resources (personnel, money, production capacity), so that you can achieve the goals in the field of product development.

What is portfolio management?

Portfolio management is a dynamic decision-making process in which the list of new products and R&D projects is evaluated on a regular basis. Priorities are set and sometimes adjusted on the basis of predetermined criteria. This means that at that moment certain projects will be given priority at the expense of others.

Why is this important?

  1. Successful product development is the foundation of business success. In order to achieve this, you need portfolio management so that you can select tomorrow's winners.
  2. Product development is the translation of the business strategy. New products should be the concrete result of strategy, portfolio management contributes to the realization of the right products.
  3. Portfolio management is about the distribution of resources. Resources are scarce and can only be used once

Symptoms of portfolio management failure

If you recognize the following, this is the reason to reexamine your current process:

  • Reluctance to stop projects : there is no clear framework for determining whether projects go ahead or not. It seems that as soon as a project has started, it starts to take on a life of its own. New projects are simply added to the list of active projects. The result is a total lack of focus, resulting in too many projects for the available resources (personnel, money, production capacity).
  • Available resources are distributed among all projects. Because no choices are made, everything just has to go on. People work on multiple projects and do everything, and occasionally skip steps to meet the deadline. So ultimately there is a delayed delivery with a lower quality. Which of course also reduces the chance of success in the market ...
  • Choice for low hanging fruit projects. Because there are no clear criteria, the 'incremental' innovations have a better chance. Incremental means that there are small improvements compared to the current product. Consider, for example, adding extras, line extensions, etc. This is the low-hanging fruit of an organization, these projects are reasonably predictable in terms of results. This does not apply to the more radical forms of innovation. While these projects are desperately needed in the long term.
  • Actually, there is no strategy. If there is no portfolio management against which projects are tested against a strategy, it is actually no longer a strategy. Product development is a crucial part and very decisive for your long-term strategy.

Two levels

Strategisch portfolio management

Level 1 Strategic level [1]

At this level you look at how the available resources are divided over so-called 'strategic baskets'. For example on the basis of the degree to which the project is innovative. But this can also (additionally) include distribution based on the degree of risk, markets or technology.

The Product and Technology Roadmap (= long-term planning) is also created at a strategic level.

Level 2 Tactical level

At this level, the reviews location and it is determined whether the company is indeed engaged in the right projects. Also the go / no go moments in a regular product development process fall under tactical portfolio management. Reviews usually take place at business unit level or there is an assessment of projects in smaller organizations.

What are the success factors?

Based on research conducted by Cooper et al[2] it has been found that successful companies have embedded portfolio management in their organization as follows:

  1. They use a clear, explicit method
  2. There is a formal process
  3. There are clear rules and procedures
  4. Portfolio management is applied consistently
  5. All projects are included in the portfolio reviews
  6. Senior management believes in the portfolio method

Methods for applying portfolio management

There are different methods to apply Portfolio Management, most companies use several of these methods. There are also several software packages that can help streamline the process and make it transparent.

Do you want to know how Pimcy approaches that? Then take a look here..

[1] Source: Winning at new products, R. Cooper, 2011

[2] Portfolio Management for New Products, 2nd Edition, R. Cooper, S. Edgett, E. Kleinschmidt, 2001

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