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, and 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.
In spite of all the hype around the topic of portfolio management, and the myriad 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 and results: 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 box insert).
Portfolio Management is Vital, But Flawed 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 IRI members, portfolio management has gained prominence for a number of reasons :
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.