New Problems, New Solutions: Making Portfolio Management More Effective

Article excerpt

Those businesses that implement a systematic process for managing their project portfolios clearly outperform the rest, ongoing research reveals.

OVERVIEW: Most companies' development portolios suffer from: too many projects for the limited resources available,ineffective project prioritization; Go/Kill decisions made in the absence of solid information; and too many minor projects in the portfolio, The end result is poor pertbrinance: low-impact projects; too long to get to market; and higher-than-acceptable failure rates. Solutions are proposed based on the experiences of firms in the study. The first is to implement a systematic gating or Stage-Gate new product process, complete with tough Go/Kill decision points. Next, build in resource capacin, analysis-a quantitative assessment of resource supply versus demand in your new product pipeline. A third solution is to develop a product innovation and technologv strategy for your business to help guide the selection of the best projects. Finally, integrate portfolio management into your gating process using one of the two approaches utilized by leading companies in the study.

There are two ways for a business to succeed at new products: doing projects right, and doing the right projects. Most new product prescriptions focus on the first route; for example, on effective project management, using cross-functional teams, or building in the voice of the customer. Portfolio management, the topic of this article, focuses on the second route, namely, on doing the right projects.

Despite all the publicity about portfolio management, and the many portfolio methods proposed, managers have identified major problems and have raised serious concerns about the effectiveness of portfolio techniques. This article reports the results of continuing research into portfolio management practices (1, 2). It highlights some of the problems, and offers some tentative solutions-solutions that have been witnessed in typical firms as they try to address the issue of picking the right projects (see "Research into Portfolio Management," next page).

An Elusive Goal

Portfolio management is fundamental to successful new product development. Portfolio management is about resource allocation-how your business spends its capital and people resources, and which development projects it invests in. Portfolio management is also about project selection-ensuring that you have a steady stream of big new-product winners! And portfolio management is about strategy-it is one method by which you operationalize your business's strategy.

Recent years have witnessed a heightened interest in portfolio management, not only in the technical community but in the CEO's office as well. According to our recent survey of Industrial Research Institute member companies, portfolio management has gained prominence for a number of reasons (3):

* Financial-to maximize return on R&D and technology spending.

* To maintain the business's competitive position.

* To properly allocate scarce resources.

* To forge the link between project selection and business strategy.

* To achieve a stronger focus.

* To yield the right balance of projects and investments.

* To communicate project priorities both vertically and horizontally within the organization.

* To provide greater objectivity in project selection. The problem is that effective portfolio management has proven to be an elusive goal for many businesses. Management rated the effectiveness of their project selection and portfolio management methods, and the results are provocative (2) (Figure 1):

* Portfolio methods in use were given high marks for ensuring strategic alignment-that R&D spending and projects undertaken are consistent with the business's strategy.

* Portfolio methods also fared well in terms of selecting high value projects.

* But portfolio methods were rated much weaker in terms of. …