product portfolio management decisions are tough
10
Oct

Product portfolio management: recipe for innovation success

How many projects are currently managed in your company? If you immediately are able to answer this question, you already are an exception. Anyway, some additional questions:

  • How many of these projects are dedicated to improve existing current products or service?
  • How many of these projects are dedicated to totally new initiatives, totally new or even disruptive business models?
  • How many projects contribute to long term strategic objectives?
  • Which percentage of projects make it to the final cut and are actually implemented?
  • Are certain active projects killed underway and why?

If you have implemented a sound product portfolio management process (PMP), you are able to answer the above questions…

What is product portfolio management?

Product Portfolio management is “a combination of activities that enable a company to select, develop and commercialise a continuous stream of new products. This stream contributes to achieving strategic objectives and long term growth.”[1]

Based on predefined criteria priorities are set and sometimes adjusted.This means that at a certain point some projects are prioritised at the cost of others. By killing projects early, waste of resources is avoided. These resources then can be used to start other, potentially more successful projects.It is proven that for every successful idea, at least 12 ideas are required. However killing a project is a difficult decision for most companies.

Research[2] has indicated that two problems exist with respect to New Product Development (NPD) portfolios. First, most companies focus on incremental innovation, this is product or market extension of the existing portfolio. Result is that the portfolio is not sufficiently targeted to the long term. Second, often more projects are managed than would be possible given resource constraints. This causes management to be more of a ‘fire fighter’  rather then worry about long term strategy. In order to achieve short term goals more projects are added at the expense of high impact, high risk projects.

Is the innovation funnel really a funnel?

It is important that the innovation funnel really is a funnel. This implies that as many ideas as possible are being generated and explored, but also that ideas or concepts are killed when there is little chance of success. In this way you increase your odds and accelerate innovation. Often we see that once a project is started, it nearly always will finish. The funnel has then become a tunnel.

portfolio management

Success factors in product portfolio management

Portfolio management is not something that you implement in a day. It is vital to start small, learn and iterate. Three key success factors have been acknowledged. [2]

  1. Portfolio mindset: the company has a complete overview of the full portfolio and a profound in depth knowledge about each New Product Development project.
  2. Focus: the company is targeted on projects contributing to long term objectives.
  3. Agility: the company is agile in decisions regarding portfolios. Resources can be assigned to other  projects if necessary. Projects are killed when they no longer contribute to strategic goals or in case the market has changed and the project is no langer relevant.

Step-by-step to a portfolio management process

Which steps are  –high level- required to achieve a good working product portfolio management process?

  1. Understand status quo

In this stage you have to map which activities currently are being done with respect to portfolio management. You will also have to map your current portfolio. This is quite a lot of work, so often it is a good idea to set up a ‘taskforce’. For larger companies my advise is to start small initially, by for example starting with a single business unit.  Among others, the following questions need to be answered:

  • What are the formal and informal procedures for product development?
  • Who does what when?
  • What are the decision criteria?
  • Who are the stakeholders?
  • Who takes decisions and when are they taken?
  • How is our portfolio currently builld up?
  • Which problems do we currently encounter?
  • How have budgets been divided amongst several categories?
  1. Buy-in management & employees

Portfolio management well implemented means a different way of working for people. Both employees and management need to be convinced of the added value of product portfolio management. In a kick-off meeting product portfolio management needs to be explained, plus why the company wants to implement this. Also the approach to get there needs to be explained. The workshop can consequently be used to further investigate the current working practices, but also to explore what the desired way of working would be.

  1. Design a new Product Portfolio Management Process

A clear process for product development initiatives

This sounds heavier than it actually is. The key thing in portfoliomanagement is to agree on specific criteria upon which decisions can be made. Most product development processes more or less have the following stages. :

  1. Idea generation
  2. Concept development
  3. Product development
  4. Launch

The process description is not be a step-by-step description of each deliverable, (first John has to do this, then Jane will..). It is rather a description of the criteria that stakeholders would like to have considered before moving on to the next gate. Even agile and lean startup- like methodologies go through these stages and should meet certain criteria.

In the idea generation stage criteria are agreed upon that -if met- will allow the project to move on to next stage concept development. Example: ‘Our customers are positive about this idea’. The marketing responsible will have to confirm his consent with this statement. And if he does not consent there is good cause to rediscuss.

All stakeholders need to be involved in determining the right and most important criteria. These criteria will become heavier the further down the process. These criteria will be input for a workable process flow.

Determining the portfolios, aka the ‘baskets’

portfolio managementWhich portfolio categorisation is fitting for the company and will help to achieve strategic goals? Which balance is the company looking for in ‘small’ and ‘large’ innovations?

Key Portfolio Metrics

In order to make projects comparable within a portfolio, KPIs need to be agreed on. Only in this way a fair comparison can be made. These KPIs may differ per type portfolio. For example: the KPIs for incremental product innovations should be different to KPIs for projects that are targeting to disrupt the own business model.

Determine frequency, participants, agenda etc of Project and Portfolio reviews

It is advisable to initially kick off with a limited number of projects, so that people can get used to the new way of working and to make it easier to iterate.

Selecting Product Portfolio Management Software

Software can help to set up a process and will facilitate implementation of Product portfolio management. Next to this it will – if applied in the right way- the speed and quality of decision making.

  1. Let’s get started

Now that we know our status quo and where we want to be, we need to take a couple of steps.

a. Status quo versus desired situation. The first step is to critically reassess all exisiting projects, but only from the stage they are currently in. Objective is to work towards a more balanced portfolio. Don’t be afraid to kill projects early. You will prevent wasting resources and create space for new initiatives.

b. Start with projectreviews. Now that stages have been set, we can plan our first projectreviews. In this review projects ready to move to the next stage are being discussed. For existing projects we do not bother about the past, but will judge the current stage. Focus in these reviews is to discuss about the criteria that are not met (yet).

c. Start with portfolio reviews. iIn this review projects compete against other projects within one portfolio, even though the project by its own right has passed the projectreview. This needs to be done in case resources are limited.

Again, start small, with a couple of projects to get used to this way of working. The way of working will have to be refined. As soon as it starts to feel that it is working, you can scale up.

Conclusion

A sound product portfolio management will help you to develop more and better innovation initiatives that will fit your business strategy. Implementing product portfolio management is not easy. By starting small and taking one step at a time, you can learn and iterate and gradually scale up to the full company.

 

Joyce Oomen is founder of Pimcy and helps companies accelerate innovation by – among others- helping with implementation of product portfolio management. https://www.pimcy.nl/en/portfolio-management/

 

[1] Interpretation from “Exploring Portfolio Decision-Making Processes” by Linda Kester et al (2011).

[2] “An Empirical Investigation of the Antecendents and Outcomes of NPD Portfolio Success” by Linda Kester et al (2014).