Currently, only few companies practice efficient controlling and long-term planning of product development professionally. Top-level managers, especially the CEO, CFO as well as sector and branch managers, have inadequate access to important information concerning status and risk, which inhibits both transparency and the optimal leadership of employees involved in the innovative process. As a result, the objectives of top management and the everyday reality of product development diverge significantly.
Portfolio management is the tried-and-tested method of collecting, consolidating and analyzing information, creating processes and compressing results into strategies, in order to: a) conceive a solid, long-term plan for future product portfolios, and b) reduce day-to-day operating inefficiencies. As such, it is considered to be one of the most important tasks in the field of innovation management. Authors such as Wheelwright, Clark, Cooper, diBenedetto, Mc Grawth, Shelton etc. have stated this for 20 years. Comprehensive studies, e.g. by Cooper or the Aberdeen Group, prove empirically that companies which handle their portfolio processes correctly distinguish themselves from their competitors in terms of revenue, growth, and profitability (see bibliography). Studies by the pdma also show the importance of this management tool in the US.
However, both German and English speaking areas currently suffer from a lack of up-to-date investigations that reveal the challenges portfolio management faces in terms of innovation and development. Under the joint leadership of BearingPoint, pdma, and Technical University Berlin, a study was conducted that detects challenges, management problems, and learning goals in current practice. This is based on the current status of portfolio management amongst leading German industrial and service companies as determined by the study.
Thanks to these insights, the study additionally offers companies a model for classification and further development. The maturity model of portfolio development that was prepared in advance for product development projects assists in determining a company’s own standpoint and in problem diagnosis. The maturity model gives companies an opportunity to determine their position in their respective industries, to realize which development opportunities are on offer and how professionalization might be accomplished.
Maturity model for the evaluation of portfolio management in product development
Since studies and the industries’ leading authors have attested to the positive influence of portfolio management in the success of innovation management, it is crucial to implement a step-by-step professionalization in this field in order to reach the standard of industry leaders, and perhaps to even make a contribution that exceeds it. This leads to questions concerning the type and content of professionalization. Therefore, we often refer to best and low performers in the study, in other words: the ten companies with the highest and lowest total maturity values respectively. A comprehensive analysis of the disciplines management, governance, process, systems, resource management and social aspects determines what are best practices and how widely they are spread. The study shows how the companies perform in each discipline, what specific features can be identified, which properties are success factors and how they correlate with other factors. Comprehensive preparatory groundwork enabled us to identify our own maturity model as an expansion and synthesis of previously existing maturity models and experience gathered from industry and project management.
It consists of the following disciplines that were individually examined, detailed and integrated into the study:
• ”Management” describes the value of project portfolio management (PPM) and the support of the management level of the company
• “Governance” deals with the implementation and establishment of project portfolio management.
• “Process” analyzes how data collection, assessment, selection, prioritization of projects and monitoring are conducted in practice.
• “Systems” investigates the IT-based support of PPM and determines potential for improvement.
• “Resource Management” determines questions that arise during the identification of unused capacities and the correct allocation of qualified employees to projects.
• “Social Aspects” questions the promotion of individual motivation of employees for PPM, also via role models and decision makers.
Reviewed together, these six disciplines comprehensively depict the current situation and offer insights into correlations and success factors, in order to successfully utilize and further develop this method.
Study Demographics – We have reached those responsible
The target demographic of the study was determined to be German industrial companies, in particular companies in the mechanical engineering, plant construction, automotive supply, and high-tech industries. Interview partners were chosen based on their roles and functions in their company, namely global product development managers, portfolio managers, innovation managers close to the company leadership, as well as company-wide project controllers.
Based on statements concerning expectations towards portfolio management, there seems to be a widespread, fundamental acceptance of PPM. The people we came in contact with not only referenced the topic heavily, but saw themselves also as designers and deciders of portfolio management for product development in their respective companies. The decision to collect data only via interviews ensured that the people interviewed were actually the right contacts to speak with. Representatives of several companies in the target audience verified the creation and formulation of the questions, which were based on scientific research and long-term practical experience. These companies were identified to be relevant and active in the area of PPM through the experience of leading organizations. Additionally, it was ensured and verified during the interview process that the interviewees and the studies’ creators had a common understanding of the individual topics at hand. Another goal of the study was to question acknowledged definitions currently in use in the theoretical framework. Therefore, interviewees were asked to define their personal understanding of portfolio management.
The actual survey was conducted as a personal interview, either face-to-face or via phone, by interviewers experienced with the subject matter and with the help of a twelve-page questionnaire. In total, 40 complete interviews were conducted with a response rate of 79.6 percent. Possible distortion of results due to nonresponse bias was taken into account by comparing the variables of “employee count” and “revenue” with those of relevant, non-participating companies. No statistically significant discrepancies were found.
Below is an overview of participating companies by sector. The average number of employees is 34,238, with an average revenue of 6.7 billion euros in 2008, of which approximately 30 percent were generated with new products in the last 12 months. Furthermore, the companies disclosed average project lifespans. 40 percent of the projects were completed in less than one year and 34 percent of the projects took two years or longer to complete.
The responses of randomly chosen partners in non-participating organizations as to why that organization did not participate are as follows:
• Confidentiality of internal company processes
• High political sensitivity, therefore unpredictable external effects
• Lack of time, alternatively lack of confidence in the supposedly “bureaucratic” methodology
• Lack of a single responsible person for such matters
• Unwillingness to make disclosures due to market position
• Dissatisfaction with the topic due to previously failed implementation attempts