Let’s do something different

Let’s do something different

Let’s do something different

April 2019

Zhengzhou Si Nian Food Co., Ltd.郑州思念食品有限公司

A word ABOUT MEFounder & Consultant

• Vice-Chairman, PDMA

• Founder, Interesting Blazer

• Director, Ribbon Health

• My last startup sold for $165mm / ¥1.1bn

• Investor & Advisor

What you can expect§ PDMA Overview

§ Portfolio Management

§ Discussion

About pdmaWho we are

The GLOBAL source of

INNOVATION

knowledge for over 40

years

Since 1976, PDMA is the only

organization that focuses on the unique

set of integrated activities involved in the

full lifecycle of product development and

management, including innovation.

16 International

Affiliates Europe

Asia PacificSouth Central America

P D M A I N T E R N A T I O N A L

United StatesHeadquarters

StrategyNew

ProductsProcess

Life CycleManagement

Portfolio Management

Tools and Metrics

Market Research

Culture, Organizationand Teams


PDMA BOK Framework

Copyright © 2016 PDMA All Rights Reserved

Portfolio Management Content

The relationship of the portfolio to strategy

What is a product portfolio?

Selection of new products for development

Achieving a balanced portfolio

Senior management roles Resource allocation

In summaryReferences


ProductPortfolio


What is a portfolio?

“A set of projects or products that a company is investing in and making strategic trade-offs against”

(PDMA Handbook, Kenneth B Kahn ed, 3rd edition, 2013)


What is Portfolio Management?

There are two necessary ways for a business to succeed at new products:

Portfolio Management is doing the right projects!

DOING THE

RIGHTDOINGprojects RIGHT projects


Portfolio Management: Definition

⏤ A decision-making process where a business’ list of active projects is continually reviewed and revised.


Portfolio ManagementProduct Portfolio Management

Performance Metrics and Reporting

Finance and Resource Management

Process and Practice

New product Ideas

ProductEnhancements

Maintenance& Support

Research &Development

Ideation &Evaluation Execution

Road-mapping

CapacityPlanning

PipelinePlanning

Launch End oflife

In-marketanalysis

Life Cycle Management

Value Maximization: Allocation of resources to maximize the value of the portfolio (the sum of the commercial worth of the individual projects)

Balance: Achieve the right balance of the right projects in terms of some pre-determined criteria such as long vs short term; high vs low risk; specific product or market categories

Right Number of Projects: Ensure that resources and focus are not spread too thinly – most companies include too many projects in their portfolio

Strategic Direction: Ensure that the overall portfolio continues to reflect the business strategy

Four High Level Goals in Portfolio Management(Cooper et al, 2015)


Portfolio DevelopmentThe process of deciding what projects or products should be included in the portfolio consistent with the organization's strategic goals

Portfolio MaintenanceThe continuing process of reviewing the portfolio to ensure that its projects or products are still consistent with the organization's strategic goals.

The Two Aspects of Portfolio Management


Characteristics of Portfolio Management

Portfolio Management is a decision-making process within a dynamic environment, requiring on-going review.

Projects are at different stages of completion.

It deals with future events. There is no certainty of success. Portfolio management is used to increase the overall odds of success across the full range of projects or products.

Resources for NPD are limited and often shared with other business functions. These resources need to be allocated to achieve the best return to the organization.


Copyright PDMA 2016 – All Rights Reserved

New-to-the-worldNew-to-the-company Product enhancementCost reductions

BreakthroughPlatformDerivativeSupport

Types of Products Included in a Portfolio

Companies should define these according to their own specific situation and strategic goals.

Common Product Types: Other Product Types:

There is no absolute classification of product types.

Breakthrough Projects

Also known as radical or disruptive projects:

- Strive to bring a new product to the market with new technologies

- Depart significantly from existing company practice

- Have a high level of RISK


Platform Projects

Platforms provide the foundation for derivative products or projects.

… generally not as much RISK as breakthrough

Platform projects produce a set of subsystems and interfaces that form a common structure, from which a stream of derivative products can be efficiently developed and produced.

MORE RISK THAN ENHANCEMENTS OR INCREMENTAL IMPROVEMENTS


Derivative Projects

Relatively LOW RISK

Offer enhancements and features based on core company technology

Offer more cost-competitive manufacturing

Fill a gap in an existing product line

Spun off from existing products or platforms

Typical Characteristics


Support Projects

Typical Characteristics

Relatively LOW RISK

Improvements in manufacturing efficiency of an existing product or platform

Incremental improvements to existing products or platforms










Portfolio and Strategy


“Without a portfolio management method, strategic criteria for project selection are missing, so there is no strategic direction to the projects selected.” (Robert Cooper et al, 2001)

Relationship of Portfolio Management to Strategy


Ensuring the Portfolio is Based on Strategy

3 methods of achieving a clear link between strategy and product portfolio:

All 3 methods are designed to ensure that the combination of projects in the portfolio is optimal in terms of achieving the strategic goals subject to resource constraints.

Top-downBottom-upCombination


Top-Down Method(also known as the strategic bucket method)

The level of resourcing available for the entire project portfolio is identified.

Business units or product categories are prioritized according to strategic important potential for new product contribution.

“Strategic buckets” allocating the ideal spend across the various business units or product categories are defined.

EXAMPLE: 20% breakthrough, 50% platform, 20% derivative, 10% supportEXAMPLE: 60% Business A, 30% Business B, 10% Business C

Projects are prioritized within buckets.

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2

3

4

5

VISION AND STRATEGY are developed first.


Bottom-Up Method

This approach ensures that projects are consistent with strategy, but may not result in desired percentage of spending to particular types of projects.

Single portfolio is the result. Unlike the top down approach, there is no specific consideration of business unit or product category.

Strategy criteria are built into the selection criteria used to judge each project.

MANAGE THE MIX?

SELECTIONCRITERIA

SINGLE PORTFOLIO



Combined Method

Strategic priorities with regard to business unit or product category spend are established.

All potential projects are ranked against strategic criteria and spend for each project estimated.

The combination of individual project priority and budgeted spend is used to allocate the projects into strategic budgets in line with the business unit or product category priority.

The benefits of both top-down and bottom-up approaches are combined.











Selection of New Products

For DevelopmentCopyright © 2016 PDMA All Rights Reserved

Goals of Portfolio Management:

Maximize the potential value of the portfolio.

Optimize projects with business objectives –achieve an appropriate balance of projects.

Ensure strategic alignment, fit with capability, market potential and other key criteria.ALIGN

OPTIMIZE

MAXIMIZE


Selecting Products to Ensure Strategic Alignment and Fit with Capability

Rank the product opportunities.

Evaluate the product opportunities against the criteria.

Define the criteria for evaluation of the product opportunities.

Define the product opportunities or product concepts for development.

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Defining Product Opportunities:

There may be as few as one to as many as 50-100 opportunities depending on the company’s approach to opportunity identification.

Idea generation to identify new opportunities (refer to Tools and Metrics notes for idea generation techniques).

Analysis of the current product portfolio and identifying areas for product improvement or line extension (refer to Strategy notes on the BCG matrix).

New Product Development opportunities can be derived through:

GAPS

IDEAS


Evaluation of Product Opportunities

2 BASIC CATEGORIES for evaluating product opportunities:

Non-financialFinancial $


Non-financial Evaluation:

Each criterion should have a clear explanation associated with it with defined levels that can be related to specific scores on the rating scale.

Criteria to be used is defined.

Criteria depends on specific company or product demands.

Strategic alignmentProduct advantageMarket attractiveness Ability to leverage core competenciesTechnical feasibilityLevel of riskRegulatory implicationsTime to market

Non-financial criteria may include:


Non-financial Techniques for Product Idea Evaluation or Screening

The CPAS survey carried out in 2012 showed that scoring models are one of the most favored methods of evaluating product ideas for inclusion in the NPD portfolio. (Markham and Lee, 2013)

2 simple scoring models:Pass/fail or sequentialScoring or checklist


Primarily used as a first-pass evaluation of product ideas – simply to assess if the idea meets some basic criteria.

Pass/Fail (Checklist)

As with most scoring methods, it is best to include a cross-section of functional representatives in this evaluation (marketing, technical, manufacturing).

The process requires assigning a pass (P) of a fail (F) to each idea for specific criteria. Ideas have to pass on all criteria to be carried forward.


Product Idea

ExistingDistribution

Channels

Manufacturing Capability

Consistencywith Range Overall

One P F P FTwo P P P PThree P P P PFour F P P FFive P F F FSix P P P PSeven F F F F

Pass/Fail or Sequential Screening: EXAMPLE


Scoring (Checklist)

It leads to a ranking of the product ideas.

Scoring requires a more detailed analysis and would normally follow a pass/fail screening. More information is required to make better assessments.

Assessment criteria are selected and weightings assigned to each criterion to shows its relative importance.

Each product idea is scored from 1 - 10 for each criterion and a weighted sum calculated across all criteria.

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Screening factorsSales Potential

/10Fit withStrategy

/10

Level of Competition

/10

Overall Score Rank

WeightingProduct idea

(10) (7.5) (5) /225

One 8 6 8 165.0 3Two 8 9 7 182.5 1Three 6 6 8 145.0 4Four 5 6 5 120.0 6Five 4 7 5 117.5 7Six 8 3 6 132.5 5Seven 7 8 8 170.0 2

Scoring (Checklist Screening)

Financial EvaluationFinancial evaluation is based on the evaluation of the financial potential for each product opportunity. It is an important part of the project business case.

Refer to the Tool and Metrics section for further explanation of financial evaluation techniques.

Projection of sales and revenue

Projection of manufacturing and marketing costs

Estimate of capital costs (investment in new plant and equipment etc)

Each technique requires the following:Specific financial metrics used are:

Net present value (NPV)Internal rate of return (IRR)Return on investment (ROI)Payback period



The Outcome of Financial Evaluationof New Product Opportunities

Guides project prioritization during the portfolio selection process

Indicates if the new product is financially viable – does it have the potential to deliver a satisfactory return on investment?



Costs Returns

CapitalCost

(investment)

Fixed Variable Unit Sales

Price perunit

Total cost Total return

Annual cash flow

Over 5-year period

Financial indicators – NPV, IRR, Breakeven Product potential

A Framework for Financial Analysis of a New Product


Copyright PDMA 2016 – All Rights ReservedCopyright PDMA 2016 – All Rights Reserved









Achieving a Balanced Portfolio


These categories can be business units, product categories, target markets etc., or they can be based on the characteristics of the projects or products.

What is meant by a balanced portfolio?A balanced portfolio is a collection of projects or products with a defined proportion within pre-defined categories.

Technical feasibilityTime to marketCapital investmentMix and throughput

Portfolio Category Examples

CostBenefitRisk

Project type:Breakthrough, derivative, platform, or support



Analyzing the Portfolio for Balance

Example:First stage: Analyze and allocate projects according to product category e.g. what proportion of B2B products relative to B2C.

Second stage: Analyze and allocate projects according to project or product characteristics e.g. what proportion of high risk projects or what proportion of new to the company products.

Decide on the key criteria required for balanced portfolio.

Decide the proportion at various levels of the key criteria.

Analyze, which may be done in two or more stages, focusing on different categories of criteria at each stage.

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3


X

Y

Bubble Diagrams to Display the Portfolio

Typically, a bubble diagram shows projects on a two dimensional X-Y plot.

The X and Y dimensions relate to specific criteria of interest. Example: Risk and Reward

Bubbles are plotted according to the projects’ rating on the X and Y dimensions.

The size of the bubbles is related to a third criterion of interest e.g. the required level of investment.


RewardLOW

RiskLOW

RiskHIGH

RewardHIGH

P1

P6

P4

P3P2

P5

P7

P2 Product 2

Circle area =Capital investment

Example – Bubble Diagram for Portfolio Risk vs Reward


Technology Risk

MarketRisk

LOW

MODERATE

HIGH

LOW HIGH

Bubble size denotes NPD resource required.

Other examples : Portfolio Market vs Technology Risk

MODERATE


Basemarket

New butfamiliar

New andunfamiliar

Basemarket

New andunfamiliar

TECHNOLOGY NEWNESS

MARKETNEWNESS

New butfamiliar

Bubble size denotes NPD resource required

Other examples: Portfolio Market vs Technology Newness



Product Portfolio Model Example

Low ProductNewness

Medium ProductNewness

High ProductNewness

Improvements toexisting products

30%

Additions toexisting product lines

15%

New product lines10%

New to theworld products

5%

Cost reductions25%

Repositioning15%

Low Market Newness High Market Newness



Portfolio Management Tools used by Companies (Markham and Lee, 2013)

Bubble diagrams

Options pricing

Scoring methods

Rank ordering of projects

Strategic buckets

Checklist

Payback periods

0 20 40 60 80% TIME

Discount cash flow

BEST companies

The REST


Copyright PDMA 2016 – All Rights ReservedCopyright PDMA 2016 – All Rights Reserved









ResourceAllocation



Resource Allocation

Most companies that start a portfolio process discover their NPD success is restricted by:

It is imperative that projects are adequately resourced.

NPD projects may also compete with other business priorities.

Too many projectsNot enough fundingNot enough time - delayed launchesToo few human resourcesNot the right skillsPoor execution

On TASKOn TIMEOn BUDGET

Project Success:



Methods for Resource Allocation (Cooper et al, 2015)

Based on Project Resource DemandPrioritize the current project list from best to worst (using a scoring model or some form of financial analysis).

Develop a detailed plan for each project. – Use a project management software package such as Microsoft Project.

Allocate resources in the project plan according to specific categories (engineers, designers, manufacturing, etc.).

Determine the cumulative resource requirements for each category by time.

Match the resource demand for each category and time requirements against resource availability.

Identify areas of resource overload and:

• Re-prioritize projects in timing or delete projects from the portfolio.• Source additional resources – additional hiring or outsourcing.

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4



Methods for Resource Allocation (Cooper et al, 2015)

Based on New Business GoalsBegin with new product goals – ask “What returns or profits are desired from new products?”Calculate the potential returns or profits from each potential new product in the portfolio – using financial analysis e.g. EVA or DCF (refer to the Tools and Metrics section).Prioritize the project and their potential returns against the business goals and select the projects that deliver the cumulative financial returns required to meet the business goals.Carry out the same exercise in individual project planning outline in method 1 above to determine the resource requirements by time against resource availability.

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What If? Scenarios are developed for Quarterly

Strategy Meeting

Monthly Resource Optimization Meeting

Pool Owner Loads Requested Demand and

then Assigns FTE’s

Project Manager Provides Scope of Work to Pool

Owner

New Project is Proposed or Active Project Modified

1. Resources are reassigned as projects evolve.

2. Results of Quarterly Strategy Review are communicated.

Typical Resource Allocation Process










Senior Management Roles



• The Project Manager is responsible for submitting project requirements to the Resource Owner.

Project Leader

• The Resource Owner converts project requirements into FTE requests and assigns FTE’s to projects

Resource Owner

• The Resource Planner meets monthly with the Project Managers and Resource Owners to optimize resource allocation and to prepare Portfolio What-if scenarios.

Resource Planner

• The Product Planners meets monthly with the Resource Planner to adjust resources to optimize resource utilization and quarterly to prepare Portfolio What-if scenarios

Product Planners

Four Significant Roles in the Resource Allocation Process











In SummaryCopyright © 2016 PDMA All Rights Reserved


• Product portfolio management is the selection and maintenance of the “right” products, consistent with organization strategy.

• The overall organization strategy and, in turn, the product strategy, provides the criteria for new product selection, and for product improvement and continuance.

• Typically, organizations will work towards a balanced new product portfolio based on criteria including risk vs. reward; new to the company vs. line extensions; new vs. existing markets etc.

• Individual project selection and achievement of a balanced portfolio can be achieved through a “top-down” or “bottom-up” approach (or a combination of both).

• Resource allocation is a critical element of portfolio management. Many companies are plagued by too many projects resulting in poor execution, delayed launches and commercial failures.

In Summary


Thank you!Please feel free to contact me with

any questions

[email protected]

ernie_harris

@ernieharris

www.interestingblazer.com

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