The maturity discipline management is concerned with important aspects of portfolio management in product development and its connection to strategy. We were interested in what a practical application of the method looks like, what the scope of this application is, and what expectations participants have towards the results. The application includes topics relating to strategic approaches, the level of management on which the method was implemented, the participants, decision criteria, risk assessment, and last but not least, the definition of success. The results paint a multi-faceted picture of rather manual, pragmatic practice, which leaves considerable room for improvement.
Strategically relevant – but 50 percent lack distinct assessment criteria
It seems obvious that a company’s product portfolio reflects its strategy. More than 90 percent of the participants claim to relate their portfolios to company strategy, however; only about 50 percent of the participants refer to a clear and concise set of goals, goal-oriented systems, and assessment criteria. 10 percent of the surveyed companies make portfolio decisions without relating them to strategy, either due to situational necessity or other individual justifications. It remains unclear how companies without assessment criteria for strategic relevance guarantee comprehensible strategic activity in practice, or whether this might be the cause for the universally assumed phenomenon of subsequently creating strategies based on individual decisions.
Exceptionally diverse expectations of the method are reality
The measurement of a method’s success is in the largest part dependent on whether it fulfills what is expected of it. In light of this, it is interesting to ask what is expected of portfolio management in product development. The answer is anything but simple, as the stated expectations are very diverse. These expectations can be sorted into three categories: future questions/strategy development, strategy implementation, and controlling. The dissatisfaction, or the manual, pragmatic practice often encountered in reality is the result of a wide range of usually unspecific expectations. In reality, a substantial amount of dissatisfaction encountered in pragmatic practice is likely due to the wide variety of generally vague ideas. The expectations voiced by participants are as follows:
• Identification of promising future markets and gaps in the portfolio
• Determination of markets
• Competitor analysis
• Consideration of technical framework
• Consideration of customer information
• Execution of corporate strategy, implementation of top-level management tools
• Project roadmap
• Alignment of market demand and array of products
• Increase of differentiation between single brands
• Reassessment and rearrangement of portfolios
• Support of revenue and growth goals
• Risk management and resource orientation
• Quantification of portfolio success
• Real-time data access
Extensive use of overlapping portfolios
90 percent of the participants practice their portfolio management at the level of company, market sector, and product line. 10 percent use portfolio management either individually or, for the most part, inside one sector of the company. In practice, more or less the entire scope of corporate activity is represented in the product portfolio, thus making it accessible to management.
Classic process owners dominate the portfolio process
The three areas involved in portfolio management within a company that are mentioned the most often are senior management, research and development, and sales. IT- and resource management, along with corporate development, are rarely named and thus seem to play a subordinate role. An interdisciplinary or realistic cross-company practice of PPM was found in very few cases.
Decisions concerning R&D project investments are dominated by financial criteria, rather than by customer needs and strategy
The top ten policy-defining assessment criteria for R&D project investments are clearly dominated by financial justifications and decision criteria. In second place comes customer needs, followed by conformity with corporate strategy. Factors such as risks or market attractiveness rank well below half of the indications. Seen from this perspective, portfolio management presents itself as a tool for financially oriented controlling, as a support for planning, budgeting, and allocation of resources. Criteria not primarily associated with financial disciplines, such as market characteristics and risks, are barely represented and rarely included in decision-making processes. Should one regard these areas as a root cause for success or failure, as represented by financial figures, then an essential part of portfolio management’s potential performance is not utilized. If this financial data is, on the one hand, regarded as a result of the past, and on the other hand a speculation about the future, linking these data with the data from customer and risk areas could pose an interesting source of new insights.
Technological innovation seen as the biggest risk
The four most important risk-related aspects that are considered before a project is approved are the novelty of utilized technology, the competitive situation, a high program complexity, as well as insecurities due to long project lifespans. The distance between technological innovation and the next point on the list, the competitive situation, is immediately apparent. Less heeded are the factors of management buy-in, customer dependability, the risk of hurdles in form of internal, organizational politics, and changes in norms or standards.
Inconsistent views: What is a success and what is a flop?
The definitions of success or failure are as diverse as what is expected of the method. Equally great is the distance between concrete and very vague definitions. Making these vague definitions coincide adequately with partially extremely high expectations which might be proven to be very difficult. As such, we posed the following question: “How do you define a flop in product development?”
• Missing financial targets in predefined time frames, and unsatisfying revenue expectations
• More than … percent negative deviations from the business plan, or a contribution margin under … percent
• Clearly exceeding targeted costing
• No commercial success, no first client found, cancellation due to client retraction
• Failure of timely cancellation, missed gates
• Cancellation of development due to new market review
• Failure to meet quality standards / serial production requirements, customer dissatisfaction, neglected usability
Flops are understood as a failure to meet economic, as well as qualitative and technical goals. However, there is no unambiguous catalogue for fact-based performance review, in order to make clear go/no-go decisions at discrete points in time (Keyword Stage Gate Process).