Just about any company you can name started by offering a single product or service. For Microsoft it was BASIC. HP started with an audio oscillator. IBM’s first product, used in department stores, was a scale for measuring weight. Colgate first made soap before getting into the toothpaste business. As these and other companies grow, they add products to meet the needs of existing customers as well as to gain new customers. Instead of one product, overtime they have several products to manage with more in development.
The move from managing a single product to managing several products throughout their lifecycle is challenging to navigate. It involves moving from product management to product management + portfolio management.
Product portfolio management is concerned with selecting the right products to develop, making trade-off decisions, and generally maximizing the value of the product portfolio. One way to think about a portfolio is as a collection of buckets. Each bucket represents an organizational objective and products in a bucket are the means of achieving the objective. For example, one bucket could be to increase revenue from existing customers while another bucket is to increase the number of new customers.
Product portfolio management is an important activity in organizations that have more than one product, but it is also an activity that is difficult to learn about. I sought to find an expert who could discuss what is really involved. That expert is Carrie Nauyalis, the NPD Solution Evangelist for Planview. Carrie began her career at Planview implementing portfolio management solutions and training clients around the world.
In my discussion with Carrie, we addressed four topics…
- What portfolio management is.
- The goals of portfolio management.
- Constructing and managing portfolios.
- Common mistakes you can avoid.
A summary of the Carrie’s responses to my questions is below followed by a link to the audio interview.
What is product portfolio management
It the discipline and framework for applying the two most precious organizational resources—your people and your money—to get the greatest value out of your investment. If you think about portfolio management like you do with your 401K, it’s the same concept, but you’re applying it to innovation. It’s about making tradeoff decisions and balance decisions to achieve your corporate or innovation strategies.
What are the goals of portfolio management
The primary goal is value maximization. Dr. Cooper and Dr. Edgett of Stage-Gate fame use that phrase — value maximization. We have don’t a ton of research and the biggest pain point is too much work for resources (people). That’s actually a portfolio management problem. You could be looking at one single project or product myopically and saying it is a good idea without the context of a larger or broader portfolio. So you’re missing that perspective of how that one idea fits in the greater good – the portfolio of projects. Some things to consider – do we already have multiple products in that space, will it cannibalize something else, are we hitting one market too hard and having a gap in another one? Many of these questions deal with the need to have balance in a portfolio, for example, reasonable percentages of resources on breakthrough projects vs customer satisfaction projects.
What are the ways to construct a portfolio
This is one of those questions where it depends. There’s no one right answer and it really does vary pretty widely. Automotive or pharma, which have really long cycle times, versus a CPG company that has extremely short cycle times, will have portfolios constructed differently. In most cases, the portfolio is a mix of things. And, you can have multiple portfolios with a project showing up in different ways so that different people in the organization can see it the way that they want and how they think about it. There are top-down portfolios with goals set by senior leadership. As an example, a goal may be to deliver existing products to a new market- to enter the new market and grow revenue by X percent. It’s a conscious decision at the executive level. On the flipside is the bottom-up approach. That might be a situation where product features are driving a particular product, and customer requests are driving features. There are also dozens of other portfolio types. You might have a portfolio by region, by brand, by product line, etc.
How are portfolios managed and controlled
It depends again on the business and the frequency, but a trend is establishing some kind of a project and portfolio management office. They call them Centers of Excellence. Having a place for the discipline, for the people, process, and tools to manage the discipline is a big benefit. It doesn’t have to be a large team. Their focus is to serve the business. They are not decision-makers, they are not the ones who are dictating, they are not the ones prioritizing. They are the ones to support the entire process.
Where does portfolio management fit into a stage-gate process
I believe that portfolio management as a discipline can enter the front end of the funnel. It is only a framework to help projects stay focused. I really believe in Google’s 10% time, but I’m not a fan of zombie projects. When you’re doing ideation, it really should be challenge-oriented. If we need to take a product and make it 10% lighter, what can we do? That should be an ideation challenge. Or, if we need to grow a brand, what product should we launch? That’s an ideation challenge. So portfolio management is providing those categories and the strategy to go make it happen. I’m not a big fan of ideation for ideation’s sake. I want it to have a purpose and portfolio management provides that framework and structure and purpose.
What are some of the common mistakes made with portfolio management
You have to be thoughtful about those that they drive the behavior and the results that you want. When the process discounts something that really would have been a good idea, that’s where the human factor comes in. And there is a human factor in portfolio management. It’s not just a numbers game. It’s not just how well did an idea score. That’s why we’re humans and that’s why we analyze the portfolio. Another common mistake is setting up all of the structure and the process and it becomes too rigorous. I think that sometimes you get tempted to say, oh, well, we can do all of this process, and then they just beat the living daylights out of innovation with process kill.
I’ve talked to Dr. Cooper about this, that stage-gate processes sometimes are used for evil and not good. Being able to make sure there is just enough portfolio process to accomplish the goals — starting small and keeping it simple, that is the number one recommendation. Start with a blank slate and say, what do we need to drive the strategies that we want to be able to achieve and the behavior that we want to be able to achieve? There’s tons of best practices out there, but really keep it light. And be very clear about what you’re trying to accomplish with it.
image credit: bigstockphoto.com
Listen to the interview with Carrie on the Everyday Innovator Podcast.
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Chad McAllister, PhD is a product innovation guide, innovation management educator, and recovering engineer. He leads Product Innovation Educators, which trains product managers to create products customers love. He also hosts The Everyday Innovator weekly podcast, sharing knowledge from innovation thought leaders and practitioners. Follow @ChadMcAllister