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Portfolio Management is the responsibility of the senior management team of an organization or business unit.
A logical starting point is to create a product strategy – markets, customers, products, strategy approach, competitive emphasis, etc.
The earliest Portfolio Management techniques optimized projects’ profitability or financial returns using heuristic or mathematical models. The chart shown above provides a graphical view of the project portfolio risk-reward balance. Once this is done, then a portfolio listing can be developed including the relevant portfolio data.
This portfolio list can then be ranked by either the development priority index or the score. Once the organization has its prioritized list of projects, it then needs to determine where the cutoff is based on the business plan and the planned level of investment of the resources avaialable. With the significant investments required to develop new products and the risks involved, Portfolio Management is becoming an increasingly important tool to make strategic decisions about product development and the investment of company resources. In a recent article (1), I proposed a practical project portfolio management (PPM) system appropriate for small to mid-sized firms. In addition to the intuitive argument above, there are examples in the literature that make a compelling case based on business performance to maintain a balanced approach. A recent article in the Journal of Product Innovation Management (3) provides empirical evidence that companies who are characterized as possessing “innovation ambidexterity” are more likely to outperform competitors in terms of revenues, profits, and productivity growth. If you agree  that balance is important, what organizational characteristics are important to insure that you can maintain a level of innovation ambidexterity? First, is to maintain what the authors in the JPIM article define as a “learning capability”. New Product Visions is a consulting company that helps organizations improve the effectiveness of their new product development processes. This entry was posted in Overall NPD Process, Project Definition, Project Portfolio Planning by admin.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. This team, which might be called the Product Committee, meets regularly to manage the product pipeline and make decisions about the product portfolio.
The second step is to understand the budget or resources available to balance the portfolio against. However, this approach paid little attention to balance or aligning the portfolio to the organization’s strategy. It is used to assure balance in the portfolio of projects – neither too risky or conservative and appropriate levels of reward for the risk involved.
Therefore, some mix of these techniques is appropriate to support the Portfolio Management Process. With multiple business units, product lines or types of development, we recommend a strategic allocation process based on the business plan. We favor use of the development productivity index (DPI) or scores from the scoring method. An example of the portfolio list is shown below and the second illustration shows the category summary for the method. For example, the risk-reward balance is commonly checked using the bubble chart shown earlier. In many companies, current year revenues are increasingly based on new products developed in the last one to three years. A PPM system is necessary in order to make sure all ideas for new products are thoroughly considered, and a process in place to decide which ones to invest in. In every company, there are multiple options in how new products are defined, and many ways to gain competitive advantage.


For instance, in a product extension, maybe there are going to be some enhancements in performance, but the real reason for the project may be to reduce manufacturing costs by changing the manufacturing process. The reasons on the surface seem intuitive, but are much more difficult to put into practice.
For instance, every company today is on the band-wagon to become more “innovative”, to create the next block-buster radical new product. Innovation ambidexterity is defined as the ability to engage simultaneously in both exploratory activities that lead to radical innovations as well as exploitative activities necessary for incremental innovation. Drawing upon the JPIM article cited previously, Roger Martin’s concept of the “knowledge funnel” (4), and my own experience, I would propose there are three (3) key factors. This is a combination of practices including intraorganizational learning among employees that emphasizes the acquisition, dissemination, integration, and development of knowledge over time.
I have incorporated this concept in several other articles but it applies to this discussion as well.
It the senior leader responsible for the business who must make sure that the portfolio is balanced.
Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
Third, each project must be assessed for profitability (rewards), investment requirements (resources), risks, and other appropriate factors.
Scoring techniques weight and score criteria to take into account investment requirements, profitability, risk and strategic alignment. This strategic allocation should apportion the planned R&D investment into business units, product lines, markets, geographic areas, etc. The worksheet computes the average scores and applies the weighting factors to compute the overall score.
The first step is to check that the prioritized list reflects the planned breakdown of projects based on the strategic allocation of the business plan.
Therefore, these portfolio decisions are the basis of a company’s profitability and even its continued existence over the next several years. Most companies have far too many projects for available resources, therefore, a process to choose becomes very important, especially in today’s competitive market and tough economic times.
For an extension, almost by definition, the product technology is likely to be fundamentally the same as the existing product.
For instance, you might be incrementally improving multiple sub-systems, updating the industrial design, re-engineering the entire architecture including electronics and embedded software, and developing a new UI. The point is, balance in the portfolio is important for financial success over the long term.
Also important is interorganizational collaboration in the form of partnering with other sources of knowledge outside the firm, and then disseminating that knowledge within the firm. They need to commit some resources to explore new “mysteries”, otherwise competitors may just be ready to disrupt your business. Are there other aspects of a balanced project portfolio that are important and you would add?
The shortcoming with this approach can be an over emphasis on financial measures and an inability to optimize the mix of projects. The size of the bubble is proportional to the total revenue generated over the lifetime sales of the product. For example, if a lower priority platform project was omitted from the protfolio priority list, the subsequent higher priority projects that depend on that platform or platform technology would be impossible to execute unless that platform project were included in the portfolio priority list. The focus of this article is to discuss why there is a need for a balanced portfolio and what needs to be in place organizationally to achieve it. So for instance, an extension of an existing product might only be intended for the existing customer base. For a new product, the technology exists somewhere but the firm may not have the knowledge.


While none of the individual pieces are necessarily high-risk from a technological standpoint, project complexity and the integration risk could be very high, turning the project into a high-risk “mega-project”.
No company can prosper over the long term if the only types of projects ever done are low-risk incremental, product extensions. Finally, is the importance of the organization’s culture, and specifically an open culture that emphasizes and rewards risk-taking, trust, respect for others, learning, and finding new opportunities. I believe that as companies become more successful, they tend to become more risk averse and begin to focus more on exploitation vs.
By dividing this result by the development cost remaining, it places more weight on projects nearer completion and with lower uncommitted costs. On the other hand, maybe the reason for the extension is to incrementally expand sales to a new customer base.
Here, the choices may be to acquire a company that has the technology and people, or hire new staff and develop the knowledge in house. There is no doubt, but from a practical standpoint, a recent article in Fast Company (2) points out that the real driver of Apple’s success is incremental innovation.
These are typically presented in the form of a two-dimensional graph that shows the trade-off’s or balance between two factors such as risks vs. The scoring method uses a set of criertia (potentially different for each stage of the project) as a basis for scoring or evaluating each project.
In that case, there may be the need to develop additional marketing capability as part of the project. For  radical, or new-to-the-world products, the technology may not exist and has to be invented.
On the other hand, even for a radical project, you don’t necessarily need to make it a “mega-project”. As the author states: “…the marvel of Apple has been its seemingly inexhaustible capacity to pummel consumers again and again with product refinements. Finally, senior management need to be engaged in the NPD process and support a culture of innovation that is so important for long-term success. That is not to say that every new product considered a “radical” innovation has to involve all new technology.
You could for instance, roll out the technology on an incremental basis, over the course of several product introductions. Most companies will want to have a more balanced portfolio of projects in order to balance the risk. That might provide multiple benefits including time for the organization to iterate and learn, improve quality, and allow the core technology to come to market sooner. This is no different than assessing your individual tolerance for risk and designing an investment portfolio based on that risk profile. At some point, engineers may develop a heuristic, or a rule of thumb to narrow the field of inquiry, and focus on a certain aspect of the problem.  Ultimately, every company strives to develop an “algorithm”. This allows a task or process to be done over and over again without mistakes and with a high level of quality.
Moving across the stages is considered exploration or the search for new knowledge, and working within a stage is exploitation. Martin’s book makes the case, as does the JPIM article, that companies need both to survive long term.



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