Join Our Knowledge Community
What is New Product Portfolio Management?
This critical value-add activity encompasses a number of decision-making processes within the business, including periodic reviews of the total portfolio of all projects. It involves looking at the entire set of projects and comparing all projects against each other, making ongoing Go/Kill decisions on individual projects, ensuring fit with new product strategies for the business, and finally strategic resource allocation decisions across business units and strategic arenas.
New product portfolio management is fundamental to successful new product development:
- It is how you operationalize your business’s Product Innovation and Technology Strategy – it dictates where and how you’ll invest for future new product development.
- It is about resource investment – how your business allocates its limited people resources, assets, and capital.
- It is about project selection – which projects to invest in to ensure you have a steady stream of new product winners, and the ability to select today’s projects that will become tomorrow’s new product winners.
- It is about achieving alignment so cross-functional leaders and managers are focused on the right priorities.
Four Goals of Portfolio Management
There are four common goals organizations try to achieve:
Maximize the Value of Your New Product Portfolio
The end goal is to ensure that your new product portfolio yields long-term profitability and the maximum return on your new product development investment. Capital and people resources should be allocated to increase the value of the new product portfolio. Common methods used include: scoring models, checklists, and financial models.
Balance Your Portfolio of New Product Projects
Your portfolio of new product projects should contain a balance of different types of projects: 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 start spending money. Ensure that how you spend that money reflects the business’s Product Innovation and Technology Strategy – align the resourced projects with the strategic priorities already set out. There are two different approaches organizations use: 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 organizations have enjoyed success by combining both approaches.
Pick the Right Number of Projects
People resources, assets, and capital are finite. Selecting the right number of projects to maximize your resources therefore becomes critical. Failing to succeed here produces the most popular culprit of project delays: too many projects in the pipeline and not enough resources to complete them on time. A common method is to prioritize a list of projects by rank-ordering them. Another method is monitoring resource supply-and-demand to determine the availability of resources for your new product projects.
Portfolio Management – A Real Opportunity to Impact Product Innovation Performance
New product portfolio management and new product project prioritization has become a critical, value-add management activity. Many of the problems that businesses are facing can be attributed to ineffective new product portfolio management. Innovation subject-matter experts, Robert Cooper and Scott Edgett’s pioneering work in this area highlights some of the problems companies are facing if they have poor or no new product portfolio management practices:
- A Strong Reluctance to Kill Projects
- No consistent criteria for Go/Kill decisions.
- The result, projects are simply added to the 'active list' of projects with no clear directional focus.
- Resources are thinly spread resulting in longer time to market; poor quality of execution; and
higher-than-acceptable failure rates.
- Many mediocre projects in the pipeline (i.e. extensions, enhancements) and a lack of high-value projects.
- The few good projects that do exist are starved of resources, take too long to get to market
and fail to achieve full potential.
- Decisions are not based on facts & objective criteria, but on politics, opinion & emotions.
- Many of these 'ill-selected' projects fail to bring reward to the company.
- Business and/or product innovation strategy criteria are absent from evaluation scorecards and therefore, numerous projects not likely aligned with the business's strategy.
- Projects are typically a poor fit with strategy and overall spending does not reflect the strategic
priorities of the business
The Value of Implementing Portfolio Management
New Product Portfolio Management is about doing the right projects. Doing the right projects can result in a new product portfolio of high-value projects, thereby maximizing the overall return on innovation investment. When New Product Portfolio Management is properly implemented, occurs on a regular basis, and conducted well, the portfolio decisions that follow can have a significant impact on your business:
- The best projects are selected and advanced based on business merit.
- Resources are allocated to optimize execution of the product innovation strategy.
- Clear visibility occurs on the prioritization of projects.
- Projects that are underway are sufficiently resourced.
- The pipeline of new product projects is positioned to maximize the return on investment.
Explore our articles and resources to learn more about how to Manage your Portfolio of New Products.