portfolio management 2017
TRANSCRIPT
Portfolio Management Tools for R&D and New Product Commercialization
Christopher Haller
Agenda
A. Why Do Portfolio Management?B. Portfolio Management Best PracticesC. Portfolio Management ExamplesD. Portfolio Management – First StepsE. Conclusions/Recommendations
2
A. Why Do Portfolio Management? – What is R&D?
What does R&D and Product Commercialization produce?
- Designs & drawings- Knowledge- Products
Ultimately R&D and product development produces a revenue stream or returns for a company or organization
R&D and Product Development = Investment
Hence the need for Portfolio Management
A. Why Do Portfolio Management? –R&D Portfolio Example
Imagine if you had $10M of R&D resources to invest and you had the following goals:o Return of 15% (double the money in 5 years)o Protect your initial investment (moderate risk)o Invest to grow long term & maintain or improve marketplace positiono Foster an environment of innovation and continuous improvement
Investment Approaches:A. Don’t invest in R&D – put money in external investment vehiclesB. Invest based on what feels right & immediate customer wantsC. Research, analyze and balanced portfolio approachD. Purchase R&D from external sources via mergers/acquisitions and contracts
CORRECT ANSWER FOR A COMPANY WHO WANTS TO GROW IT R&D CAPABILITY:C – but what constitutes a balanced portfolio (answer in a few slides)
A. Why Do Portfolio Management?
Successful Companies = Innovative high quality products that delight customers
R&D Output = Knowledge transferred into products and returns on investment
Much of today’s product R&D activity is still characterized by 11: High rates of failure Missed deadlines Excessive rework Cost overruns
A key failure mode in the innovation process is not addressing the critical “people-driven” innovation disciplines such as: Strategic planning Product portfolio management Project and resource management
5
A. Why Do Portfolio Management?
All too often, engineering and product development suffers from a number of fallacies that rob the organization of the optimum conditions for innovative and high output17:• High utilization of resources will improve performance• Processing work in large batches improves the economics of the
development process• Our development plan is great; we just need to stick to it• The sooner the project is started, the sooner it will be finished
Effective portfolio management addresses these fallacies Effective resource management Improving flow of project (smaller is better – load leveling R&D) Ability and methodology for updating portfolio based on market and
technology Start a project when it makes sense rather than overload the system
6
A. Why Do Portfolio Management? – Pitfalls of MultitaskingImpacts of Large Number of Projects & High Utilization of Resources Numerous studies have been done assessing the impact of
multitasking and overloading resources on organizational performance & innovative thinking
People are pretty good at shifting between two contexts for small tasks. To a certain extent, we can parallel process two independent tasks.
For larger tasks/projects, we should expect some switching cost. As the number of tasks is increased, additional tasks incur an
additional 10% penalty, in reality the costs are frequently higher.
7
A. Why Do Portfolio Management? - Other Benefits
The other benefits of Portfolio Management:• In addition to improving project loading to maximize people
efficiency and promote innovative thinking, portfolio management provides the following to the business:
A logical mix of product development projects to fit the company strategy
Some rational for determining product lifecycle and EOL decisions
A roadmap for product development and implementation (communication and leadership tool!)
A tool for matching resource loading and projects to meet optimum ROI and quality of work life
8
A. Why Do Portfolio Management? – Technology/Customer Profiles Strategic & Resource Planning: Balancing project loading and
strategic vision
9
Mature business – high project load, maintaining productsLow risk, short term, low growth
Start-up business – fewer resources, new products/technology Very high risk, long term, high growth potential
Established Business looking for growth through R&D – smaller focused projects, fostering innovation and turning knowledge into products and revenue
Balanced Portfolio:Moderate risk, short/long term, moderate to high growth
A. Why Do Portfolio Management? – Technology/Customer Profiles Optimum Project Mix to Balance Growth & Risk
10
A. Why Portfolio Management – moving to development flow
Lean Product Development Principals: Set Based Flexible Design
Integration Focused Leadership
Dynamic Cross Functional Teams
Knowledge Sharing/ Continuous Learning Process
Flow/Cadence Driven Development
11
Essentially equivalent toflow -> fewer projects ata time but load leveledR&D (work is notback end loaded) – alsoprojects have reducedcycle time & DIP
Traditional Product Development – back end loaded
Lean Product Development – Load Level Flow
B. Portfolio Management Best Practices – Portfolio Definition Process
Top down and bottom up approach Top down – strategy and portfolio mix set by senior leadership (10000 foot level) Bottom up – individual technology and product experts and teams establish list of technologies and
products
Senior management puts together strategy, risk tolerance and performance goals
Technology/product experts put together data (ROM) around sales, development effort, risks, timing and strategic impact (note: representation from a diverse team ranging form R&D to manufacturing to marketing etc.)
From data and research define ratings of technology projects and product development programs – based on a range of factors:
ROI (may be adjusted around prediction risk – volume/margin) Strategy Impact Technology and customer risk Development/industrialization time (time to money) Resource Usage – Budget and People
12
C. Portfolio Management Examples – Background Used an aggressive portfolio management approach on a 300 M$/year
revenue product line from 2005 to 2014
Portfolio consisted of new products, technologies and cost reduction/concurrent engineering activities
Assembled a cross functional group comprising of senior management, product/marketing, R&D, product development, manufacturing, supply chain, purchasing, customer reps and systems to annually brainstorm and define sets of technical options and programs.
Held quarterly sponsor meetings to review the roadmap performance and also review any proposed changes between annual reviews
Through a series of programs and smaller projects introduced over 15 product changes over a nine year period that saved the company 3 M$ on a yearly basis but (cumulative savings of around 100 M$ -> payback of 4X versus development cost)
13
C. Portfolio Management Examples - Development History & Portfolio Evolution
14
C. Portfolio Management Examples - Development History: Quantitative Analysis
15
Budget, Savings (Return) & Number of Projects
R&D ROI % (One Year Payback) per YearNOTE: Volume & commodity adjusted ROI%
NOTE: Green line represents fit without outliers, red dash is all data
NOTE: Severe volume & commodityprice drops impacting returns
C. Portfolio Management Examples – Initial Roadmap Generation Technical Portfolio Analysis
16
Option Cost
Savings Timing Risk (Int)Risk (Ext Customer Resources
Proposed Introduction Cum Risk
Value w t - risk,res,time
(Months)Technology 1 174 2 1 1 1 Program 7 1 174Technology 2 45 4 1 2 1 Program 7 1.333333 34Technology 3 50 2 1 1 1 Program 8 1 50Technology 4 207 2 1 1 1 Program 8 1 207Technology 5 100 4 1 1 1 Program 8 1 100Technology 6 150 6 2 1 2 Program 8 1.666667 90Technology 7 853 0 1 1 1 Program 8 1 853Technology 8 138 3 1 1 1 Program 9 1 138Technology 9 891 6 1 1 2 Program 9 1.333333 669Technology 10 0 6 2 1 2 Program 9 1.666667 0Technology 11 3119 9 2 2 3 Program 9 2.333333 1003Technology 12 1680 6 1 1 2 Program 9 1.333333 1260Technology 13 150 6 2 1 2 Program 10 1.666667 90Technology 14 891 6 1 2 1 Program 10 1.333333 669Technology 15 2070 9 2 2 3 Program 10 2.333333 666Technology 16 690 9 2 1 2 Program 10 1.666667 311Technology 17 150 6 2 2 2 Development 2 75Technology 18 -250 6 2 1 2 Development 1.666667 -150Technology 19 600 9 2 1 2 Development 1.666667 270Technology 20 323 6 2 2 2 Planned 2 162Technology 21 400 6 2 2 1 Planned 1.666667 240Technology 22 1191 9 3 2 2 Planned 2.333333 383Technology 23 690 12 2 1 3 Deferred 2 259Technology 24 2070 12 2 3 3 Deferred 2.666667 582Technology 25 1035 12 2 2 3 Deferred 2.333333 333
Risk: Resources:1 - Low2 - Medium 1 - Low Resource requirements3 - High 2 - Medium Resource requirements
3 - High requirements - greater than 50% resources for a significant amount of time
Risk (Int) - includes technical and manufacturing risks along with uncertainty around cost reduction estimatesRisk (Ext Customer) - includes likelihood that external customers have issues with the change or reject performance of modified product
C. Portfolio Management Examples – Initial Roadmap Generation Film Technical Roadmap Definition – Roadmap 2005/6
17
C. Portfolio Management Examples – Roadmap Evolution
Technical Roadmap Definition – Roadmap 2014 Ratings
OpportunityTechnical
RiskMarket
Risk
Portfolio Management Examples – Roadmap Evolution
Technical Roadmap Definition – Roadmap 2014
19
C. Portfolio Management Examples – cost savings over time
20
D. Portfolio Management – First Steps Current State: A large project list with forced ranking for all product
lines – not load or strategically balanced
Future State: A prioritized product/technology portfolio based on marketplace and development data/analysis that is resourced leveled with the following benefits:
A process for project selection that is both top down and bottom up focused
Realistic schedules due to resource leveling and careful analysis Minimized multitasking but efficient use of resources Product/technology mix poised for short term payback and long term
growth Long term view with alignment to corporate goals (believable and
stretch targets) Scientific method for project selection Resource headroom for innovative thinking and research Responsive to customer needs and proactive R&D approach
D. Portfolio Management – First StepsSample Roll-out for a Portfolio Management Process
D. Portfolio Management – Portfolio Management Workflow
E. Conclusions1. Adopting portfolio management tools helps focus development efforts and
prevent over extension of development resources.
2. Defining product/technology roadmaps gives a tangible and long term direction for R&D and product commercialization. These tools provide a level of discipline to the project management process and also a defined method for adding or killing projects.
3. These tools in combination with lean product development tools can make significant improvements to time to market, ROI, customer satisfaction, innovation and market share growth.
4. The portfolio management workflow provides a method to both prioritize and organize projects for both short term return and long term growth
5. Regular portfolio management at both the senior management and development team level provides a tool for regular communication of projects and priorities to the product development community
24
E. Recommendations1. Rollout the roadmap definition process with both education and data collection meetings
2. Update the portfolio with the data and information and begin efforts to prioritize and organize the projects
3. Review with both senior management and individual groups for modifications and approval
4. After approval, adjust projects and resources according to the portfolio
5. Setup a routine process to re-evaluate the portfolio on an annual or semi-annual basis
6. Setup a change review process to add additional projects or revisit existing projects
7. Modify and improve the portfolio management process to meet business needs
25
Discussion / Question and Answer
26
References: Resources list:
1. A More Rational Approach to New-Product Development, E. Bonabeau, N. Bodick & N. Armstrong (Havard Business Review March 2008)
2. Developing Products in the Half the Time, Preston Smith and Donald Reinertsen (Van Nostrand Reinhold 1991)3. Going Lean, Stephen A. Ruffa (AMACOM 2008)4. Managing the Design Factory, Donald Reinertsen (Free Press 1997)5. Product Development in the Lean Enterprise, Michael N. Kennedy (Oakley Press 2003)6. Product-Development Practices that Work: How Internet Companies Build Software, Alan MacCormack (MIT Sloan
Management Review, Winter 2001)7. Shooting the Rapids: Managing Product Development in Turbulent Environments, Marco Iansiti (California Management
Review, Fall 1995)8. The Lean Machine, Dantar P. Oosterwal (AMACOM 2010)9. The Machine That Changed the World, James Womack, Daniel Jones and Daniel Roos (Free Press 2007)10. Toyota’s Principles of Set-Based Concurrent Engineering, Durward K. Sobek II, Allen C. Ward and Jeffrey K. Liker (MIT
Sloan Management Review, Jan 1999)11. Project and Portfolio Management for the Innovative Enterprise, James Ramsay (CA Technologies 2011)12. Multitasking Gets You There Later, Roger Brown (InfoQ 2010)13. Executive Control of Cognitive Processes in Task Switching, Joshua S. Rubinstein, David E. Meyer and Jeffrey E. Evans,
Journal of Experimental Psychology - Human Perception and Performance, Vol 27. No.414. Quality Software Management: Systems Thinking, Gerald M. Weinberg (Dorset House 1991)15. Workload and Performance of Employees, Shah Hussain, S.S., Jaffari, A.R. et al, INTERDISCIPLINARY JOURNAL OF
CONTEMPORARY RESEARCH IN BUSINESS. 201116. Multitasking Damages Your Brain And Career, New Studies Suggest, Travis Bradberry (Forbes 2014)17. Six Myths of Product Development, Stefan Thomke and Donald Reinersten (Havard Business Review 2012)18. The Principles of Product Development Flow: Second Generation Lean Product Development, Donald Reinersten
(Celeritas Publishing 2009)
27