Product success depends on combination

To succeed in a stressful environment, companies must carefully consider all product development projects to ensure that the product development portfolio achieves the optimal allocation of increasingly scarce resources. Efficient and rapid project implementation is only a must to enter the market, and the focus of enterprises has shifted from project management to product portfolio management. What is the goal of product portfolio management? A successful product development portfolio leverages every dollar invested and drives the achievement of strategic corporate goals.

Effective product portfolio management establishes planning and decision-making processes, organizational structures, and information systems to ensure the success of the product development portfolio. The idea is to go beyond projects to manage product development. Without effective product portfolio management, a company may develop some good products, but make little overall contribution to the business.

It's ironic that while companies strive for best practices in project management, this focus can be a hindrance to their growth. Companies must shift their focus to product portfolio management. This means that companies must understand the characteristics of successful product portfolio management, be able to properly establish the workflow and set the relevant responsibilities to drive the success of the product portfolio.

Successful product portfolio management must have the following seven elements:

1. Consider strategic factors

It is not enough to calculate the net present value of each project; there is no guiding strategy , selecting and prioritizing projects is nearly impossible. The strategic factor is very important to ensure that the product mix drives the achievement of the long-term goals of the enterprise; the effect of the product mix is properly evaluated; the relationship between the products is deeply understood; and the project implementation time is arranged according to the market conditions.

A product portfolio that achieves long-term success typically considers the following strategic factors:

Core Strategic Vision Develop a clear corporate vision of where the business is going, how the business will get there, and why the business will be successful. Evaluate the project to see if the new product aligns with the core strategic vision.

Platform Strategy A platform is a collection of common technical elements, in particular the core technologies employed in the implementation of a series of products. The platform strategy identifies the timing of product extensions, leverages and synergies, and establishes the product cost structure. Evaluate a project based on how it supports or leverages a key platform.

Product Line Strategy Market and platform-based product line strategies take into account market needs, competition, and technology trends. Evaluate a project to see whether the new product is useful to the entire product line, whether it can address competitive threats, and whether it can take advantage of technological trends.

Product Development Plan An effective development plan establishes, among other things, the development priorities for current and future products or technologies. Evaluate the project to see if the new product matches the development plan.

Financial Objectives for New Products Financial objectives should measure the expected benefits from the new product mix, calculating the growth rate of sales revenue, market share growth, or new product sales as a percentage of total revenue. Projects are evaluated by how much the new product contributes to the company's financial goals.

Many companies' representation of these key strategic factors is incomplete, not published through formal channels, or too positioned to be practical. Strategic factors must be articulated and quantitative and qualitative guidance provided for evaluating projects. Without these guiding principles, the product portfolio would be flooded with too many new products, wasting valuable resources and doing nothing to advance the company's strategic goals.

Second, establish a two-way decision-making mechanism

In the process of product development, it is a big challenge to make the right product combination decision. Assuming that there are now a number of projects worth investing in, each of which has a complete project proposal and has strong support from different groups in the company, which project should you invest in? It is very difficult to choose and decide between projects because not all projects have the same goal, but they contribute to the business in different ways. Effective portfolio management resolves this dilemma by clearly defining "sub-portfolios". The so-called secondary product portfolio refers to the product portfolio under each product category after the product portfolio is classified into categories. The prioritization of each sub-product portfolio is different.

For example, a sub-product portfolio is centered on new product development projects that determine the company's future in a high-tech industry or other rapidly growing industry. Another sub-product portfolio might consist of projects that enhance the life cycle of existing products through product improvements and extensions. A third sub-product portfolio may focus on business or process improvements that reduce costs and increase efficiency. In this way, similar projects are grouped together and prioritized together, rather than being compared to projects with distinct strategic goals. By pre-grouping and allocating budgets among each group, companies can ensure that resources will cover all important areas and not be spread out to projects that are not strategically important.

This approach allows two mechanisms to work together: a top-down allocation of investments to different project groups, and a bottom-up prioritization within each project group. Both mechanisms involve prioritization. Top-down work should directly reflect strategic intent and avoid competing priorities at higher levels (lower complexity). This ensures that resources are allocated to long-term or high-risk projects, helping companies overcome the natural temptation to avoid sacrificing more strategic projects and over-allocating resources to short-term and urgent projects. Bottom-up prioritization can be based on a set of related evaluation criteria, which we will address in the fourth point below. Projects are selected on their merits, but overall investment is limited by top-down goals.

3. Equip a two-level management team

At the core of any efficient product portfolio management, there is a fully empowered and decisive product portfolio management team. This management team is responsible for portfolio investment decisions and is accountable for all portfolio performance. It generally includes a general manager of the department and the owners of some important resources, whose consent is required to use any resources. Identifying team members and fulfilling the role of that team is critical to the success of any product portfolio management.

For large enterprises with multiple important product portfolios, it is best to have a portfolio management team per product portfolio, and a cross-portfolio management team responsible for final decision-making across all product portfolios.

The Portfolio Management Decision Team is responsible for setting the strategic process for the portfolio and ensuring that all strategic factors mentioned in point 1 are taken into account. The team communicates the company's core strategic vision, identifies top-down investment goals through the strategic classification of products, implements product development plans, and ensures that projects meet not only the company's short-term goals, but also the company's long-term goals. The team also regulates the product mix according to the progress of the project, and promptly detects and identifies any deviations and imbalances as the project progresses. If any issues arise that could impact the performance of the entire product portfolio, such as chronic resource bottlenecks, the team takes the necessary steps to correct them.

Management teams across product portfolios have different responsibilities and fill in gaps. Their work involves identifying overall product portfolio goals and balancing this with the larger strategic goals of the business. In addition to overseeing individual product portfolio management teams to be accountable for their respective product portfolios, cross-product portfolio management teams also build platforms or infrastructures that cover all products to identify and incubate new business opportunities, and to save those who fail to rely on or have both a product portfolio feature that is easily overlooked.

For example, managers in more mature business units may overlook new opportunities because of the pressure of short-term benefit goals—an opportunity that can bring better long-term benefits to the business, but requires a high level of incubator. In this case, the management team across the product portfolio can set up a new portfolio project to rescue and incubate these opportunities until it grows to a certain level and then separates out as a new division or merges into an existing division. .

4. Set Prioritization Evaluation Criteria

Because resources are always limited, companies must ultimately make trade-offs between projects. Interestingly, some companies' portfolio management efforts begin by devising an efficient scoring method that clearly tells managers which projects to invest in. However, a scoring method alone is not practical without considering strategic factors, sub-product mix and building a decision-making team. In fact, it can cause management to be distracted and overlook some of the hardest issues to focus on.

It is often the case that companies set priorities for projects but fail to allocate the resources they need, and the outlook is doomed. To avoid this situation, you can specify that a project is "executable" only when all the resources to complete the project are available. Then, give all executable items the same highest priority. At the same time, the remaining "not yet executable" projects are also prioritized, and when the required resources are available, the projects are executed in order according to their strategic importance.

WL Gore, an innovative manufacturer of high-tech textiles, believes that projects can be divided into "online" and "offline". Once a project has been given priority to "go live," the company does everything in its power to study how promising the project is as quickly as possible.

The criteria for setting priorities and selecting among a set of projects must reflect the overall strategic vision of the product portfolio. Typical criteria include the following factors:

Investment Amount: Cash, Funds, Capital

Financial Metrics: Net Present Value, ROI, Three-Year Earnings, Profit Margin, Market Share

Risk Level: likelihood of success, complexity, business affordability

Urgency: market opportunity space, competitor response

Project status: completion percentage, progress, current stage

Project type: Platform projects, new product projects, projects to maintain existing products

●Market attractiveness: market size, growth space, customer type, distribution area

●Strategic adaptability: product advantages, leverage of technology, competitive position

Some of these criteria are easy to determine, while others (such as market opportunity space) are difficult to evaluate but very important. "Market opportunity space" refers to the size of the window of opportunity and the relative urgency of entering the market quickly. This factor is important because it determines whether to delay or expedite the project. It also illustrates that in many product portfolio decisions, choosing between projects can be a difficult choice. Assuming that there are two projects that score identically in all aspects except "market opportunity space", the project that will depreciate due to time delay will be given higher priority.

Obviously, non-financial criteria are more subjective than financial criteria. This is the reason why various standards need to be combined in practice. In many companies, a well-established approach is to identify criteria based on project groupings, and then give each group a weighted score based on subjective judgment. Each project team evaluates its own project, which is then validated and revised by the Portfolio Management Team.

Each sub-portfolio may have different evaluation criteria and emphasis. For example, a cost-cutting project might emphasize near-term financial metrics, while a project developing new technology might emphasize long-term impacts. Weighted scoring results are best used as a basis for prioritization, but don't follow it as an iron dogma. In practice, scoring is based on top-down strategic goals and resource availability, and decisions are made by the management team before action.

Once project priorities have been set, communicate with all stakeholders involved in executing the project. For example, a human resources manager needs to know the relevant information in order to allocate staff as the project progresses. Many companies have not communicated adequately after setting priorities, and have not implemented them into actions. When the project is carried out, it will inevitably affect the effect of product portfolio.

5. Start a project based on available resources

Product portfolio decisions made without considering the affordability of the business are imperfect. Businesses often start projects that exceed their resources. If in the process of development, those projects with no future are automatically terminated, then it is not bad to do so. But more often than not, when a company starts a new project, it is not very clear how many resources are available. Projects are approved, and priorities are then used to decide which projects will use resources first. However, ignoring the resource capacity of the enterprise can overload the enterprise, reduce the production capacity of the project, hinder the growth of new products and limit the investment in new products.

Prioritization must be done with due regard to available resources. When one project gets a higher priority than another, it should be entitled to resources to achieve the goal, and can even divert resources from lower priority projects. For example, if a high-priority strategic project requires additional resources due to a change in scale or unanticipated technical difficulties, in order to secure supply as quickly as possible, start with low-priority projects (such as cost-cutting) project) there first appropriation.

There are two ways to associate portfolio priorities with available resources. The first method is to set project launch rules. When the control standards for launching new projects are not clear, various project teams start projects one after another without fully understanding the enterprise's affordability and the priorities of the entire product portfolio. Due to insufficient information and lack of mutual coordination, the enterprise will be overloaded and project output will be limited. out. In order to avoid similar problems, the rules should be set up so that the project can only be launched if it has a higher priority than other alternative projects and there are sufficient resources available.

The second approach is continuous management of resources. Once the project is initiated, the use of resources is subject to re-approval as the project progresses through the process of renegotiating the staffing plan and deciding whether to proceed with the project, mainly due to the uncertainty of new product development. At the beginning of each new project, the decision-making team confirms that the project remains a priority in the overall portfolio plan and that the required resources are still available. A clear link between priorities and resources will aid in the prioritization of the project portfolio.

6. Collect up-to-date data in a timely manner

Product portfolio management is a job that requires a lot of data, and it is not easy to provide data in a timely and accurate manner. Information about project and enterprise resource affordability is especially important, but both are very difficult to collect.

It is difficult to get up-to-date information on projects because the situation is constantly changing. Financial forecasts, schedules, market factors and other important data can quickly become outdated. Additionally, project information is often locked into a spreadsheet or project plan, making it difficult to share and integrate across projects. It is even more impossible to get more complex information, such as it is difficult to understand how the speed of working capital consumption affects the launch time of the project.

Information on resource affordability is also hard to come by. It's hard enough to understand who is working on what projects in different functions, let alone what resources those projects will use. Like project information, resource affordability data is in spreadsheets and difficult to obtain.

For this reason, many companies often turn to available data, usually financial data. Others rearrange their product portfolios based on data collected manually once a year, an approach that takes time and is too slow for a rapidly changing market environment. An alternative to manual collection of product portfolio and resource information is to use spreadsheets and other applications, but the process is slow and expensive, often resulting in inefficiencies and outdated data.

Today, product lifecycle management systems can automatically collect and integrate information about product portfolios, resources, projects, and processes. Not only does it provide an analytical method to help assess the health of a product portfolio, but it also provides a mechanism for communicating product portfolio challenges. With the help of these systems, companies can move from simple project management to a dynamic, real-time model of product portfolio management.

7. Evaluate the product portfolio regularly

Often, a company's product portfolio management work is intermittent and siloed. Companies often do not set up a workflow for continuously gathering information and making portfolio decisions, usually because data is hard to come by, or because the portfolio management team has other tasks to complete, or portfolio issues are not considered a problem. Critical.

For long-term success, product portfolio management must become an ongoing, mainstream business process that serves as the link between strategic planning and budgeting. Project-level decisions are different from portfolio-level decisions, which may be made due to some random event (such as the end of a phase), while the latter are subject to strict work schedules and must be aligned with business planning and strategy. consistent with the planning process. Depending on the "clock speed" of the business (referring to the pace of industry and technology innovation), product portfolio reviews are frequently performed, possibly on a quarterly basis. During the evaluation process, the product portfolio management team can reprioritize, schedule new projects, confirm product development plans and adjust strategic investment portfolios. A good product portfolio management process should clearly define the content and expected outcomes of decision-making meetings.

In addition to these regular meetings, certain events also require meetings to evaluate the product portfolio. The most common of these is when an evaluation of a project finds that some previously unanticipated resources are required, and this has implications for other projects. In addition, as the company matures in product portfolio management, decision-making at the project level increases, fostering the ability to re-prioritize projects on the basis of major events. This more dynamic model of product portfolio management requires the continuous collection and analysis of data to provide up-to-date information for real-time decision-making.

It may take 18 to 36 months for a company's product portfolio management to be perfect in the above seven areas, depending on its current level of work and the size of the business. With more information, a proven set of tools, and proven guidance at all levels, the process can be accelerated and the level of effectiveness of product portfolio management increased.

The original text is reproduced with permission from the August 2003 issue of PRTM's Insight magazine, PRTM Consulting, translated by Xiao Dongyan.