Product Portfolio management helps to innovate more successfully
How many projects are currently running within your company? If you can answer this question immediately, you are one of the exceptions. Anyway, I have some more questions for you:
- How many of these projects are aimed at improving the current product or service?
- What percentage of projects reach the finish line?
- How many projects are aimed at completely new initiatives, perhaps even completely new business models?
- Do certain projects sometimes stop during the process and why?
- How many projects contribute to achieving the long-term strategic objectives?
If there is a properly functioning product portfolio management process (PMP) in your company, you can answer the above questions ...
What is product portfolio management?
Product Portfolio management is “a combination of activities that help a company select, develop and commercialize a continuous stream of new products. This flow contributes to the achievement of strategic objectives and helps the company to continue to grow in the long term ”
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. By stopping projects early, you prevent waste of resources and you can use them to start up other, more promising projects. After all, every successful idea is based on at least 12 other ideas. However, stopping a project is a difficult decision for many companies.
From research It has been found that two problems currently exist with regard to New Product Development (NPD) portfolios. First, it appears that most companies place the emphasis on product development incremental innovation, ie expansion or deepening of the existing range. The result of this is that the portfolio is insufficiently focused on the long term. Second, it often occurs more projects than is possible in terms of resources, which means that people are more concerned with 'extinguishing fires' than with a long-term strategy. In order to achieve the short-term goals, more and more projects are added at the expense of projects with a higher impact but also with a higher risk.
Is the innovation funnel a funnel?
It is important to let the innovation funnel actually be a funnel. This means that so many ideas are generated and explored, but also that you say goodbye as soon as possible if it is not promising enough. In this way you increase the chance of success and accelerate your innovation. What you often see in companies is that a started project is almost always completed. The funnel has then become a tunnel.
Success factors in product portfolio management
Portfolio management is not something that you enter from one day to the next. It is important to start small, learn and then adjust again. Three important success factors have been identified to achieve optimal results.
- Portfolio mindset: the company has a complete overview of the entire portfolio as well as an in-depth insight into each New Product Development project.
- Focus: the company is focused on projects that contribute to long-term goals
- Agility: the company is 'agile', flexible in decisions about portfolios. This way, resources can be allocated to other projects if necessary. Projects are stopped as soon as they no longer contribute to strategic goals or if the market has caught up with the project.
Step by step towards a portfolio management process
Which steps are roughly necessary to arrive at a properly functioning product portfolio management process?
Understanding the status quo
In this phase you map out what is currently being done and how the portfolio is currently structured. This is a lot of work, so it is often useful to create some sort of 'task force' for this. With a larger company it is advisable to start small first, for example by doing this exercise for one business unit first. Among other things, the following questions must be answered:
- What are the formal or informal agreements regarding product development at the moment?
- Who does what when?
- What are the decision criteria?
- Who are the stakeholders?
- Who makes decisions and when are they taken?
- How is our portfolio structured now?
- What problems do we face now?
- How are the budgets now divided over different categories?
Buy-in management & employees
If portfolio management is implemented properly, this means a different way of working for people. Both employees and management must be convinced of the added value of product portfolio management. In a kick-off meeting you can explain what product portfolio management is, why the company wants to implement it and which approach you will follow. The workshop can then be used to make a further inventory of how work is currently being done, but also to see what the desired way of working is.
Design new Product Portfolio Management Process
You should in any case determine the following:
Clear phasing for product development initiatives
This sounds heavier than it is. The core of portfolio management is that you use certain criteria on the basis of which you can decide whether a project is worthwhile or not. Most development processes have at least the following phases:
- Idea development
- Concept development
- Product development
The intention is not to describe a step by step process (Jantje does this, then Pietje does that), but the criteria that the stakeholders want to see assessed in a phase. Agile and lean start-up-like methods of product development also go through these phases and must meet certain criteria.
In the idea development phase, the criteria are then established on the basis of which a team may proceed to the concept development phase. Example: our customers are positive about this idea. The marketing manager will have to confirm his consent here. And if he or she doesn't, there is good reason to discuss the project again.
You will have to pick up from all the parties involved on the basis of which criteria they - and these differ, if all goes well, in their weight depending on the phase - assess an initiative. You then translate this into a workable phasing, in which the most important criteria have been incorporated.
Determining the portfolios, or 'baskets'
Which portfolio format is right for the company and helps to achieve the strategic goals? What balance does the company seek between 'small' and 'large' innovations?
Determining the Key Portfolio Metrics
To make projects comparable with each other (within a portfolio), you will have to determine KPIs on the basis of which that comparison can actually be made. These KPIs may differ per type of portfolio. For example: the KPIs on which projects aimed at product improvement are assessed will be different from the KPIs for projects aimed at developing a completely new business model.
Determining the frequency, participants, agenda, etc. of Project reviews and any Portfolio reviews
It is advisable to start with a limited number of projects first in order to get used to the new working method and to be able to make adjustments easily.
Selecting Product Portfolio Management Software
Software can help to organize the process and facilitate the implementation of Product portfolio management. In addition, if properly applied, it increases the speed and quality of decision-making.
Actually get started
Now that we have a picture of the status quo and where we want to go, we will take a number of steps.
a. Status quo versus desired situation. As a first step, we have to take a critical look at the projects that are currently running and reassess them based on the new criteria. The aim is to arrive at a more balanced portfolio. It is important not to be afraid of stopping projects prematurely or in the meantime. This prevents wasting money and resources and makes room for new projects that are worthwhile.
b. Entering project reviews. Once you have entered a phasing, it is important to start planning project reviews. Here you discuss the projects that want to 'continue' to the next phase at that time. You also involve existing projects in this process, and for the sake of convenience, only the current phase is considered. The focus in these reviews is on the points where the established criteria are not (fully) met.
c. Entering portfolio reviews. You assess projects that are worthwhile in themselves in relation to other, competing projects. If resources are limited, you have to make choices from time to time and projects whose expectations are less high than for other projects fail.
It is important to start small, with a few projects to get used to this method. But the working method itself will also have to be further refined. Only when there is the feeling that the process is starting to run, the scope can be expanded.
A well-functioning product portfolio management will help you to develop more and better innovation initiatives that fit within the business strategy. However, introducing product portfolio management is not easy. By working in small steps, you can learn and gradually expand the scope to all projects throughout the company.
Joyce Oomen is the founder of Pimcy and helps companies to accelerate innovation by, among other things, advising and implementing in the field of product portfolio management.
 Freely translated from “Exploring Portfolio Decision-Making Processes” by Linda Kester et al (2011).
 “An Empirical Investigation of the Antecendents and Outcomes of NPD Portfolio Success” by Linda Kester et al (2014).