Very good points on the use of strategic buckets and the general allocation between projects.
To further add to your comments, 'regulatory risk' is something companies undervalue when it comes to many disruptive products. And there's normally a lot of catching up to do after the product has been launched and available in the market.
Additionally, every organization needs to exhibit agility in the way it makes decisions, decides on its portfolio, incorporates new information. Especially with disruptive and new to the company products; organizations need to constantly conduct experiments in the marketplace and understand customer feedback to further modify their active product portfolio.
Hopefully we can see a study done at some point to study how portfolio selection varies across industries. There's clearly a link to explore with the maturity of an industry, amount of 'new' capital flowing in, 'artificial' barriers to entry, and so many other related factors.
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Bryan Elanko
Director of Strategy Development
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Original Message:
Sent: 06-06-2019 17:14
From: Brian Martin
Subject: How does your organization currently tackle product development project trade-offs?
Bryan,
A key one is to measure alignment with strategy. If something has a strong business case and associated ROI, it can be tempted to go after it. However, if it is not aligned with the strategy of the organisation, then it will be a distraction. The concept of strategic buckets I also find useful here. By assigning a % of the overall development budget to different categories of activity within the portfolio, it ensures resources are aligned with strategy and that no strategic focus area gets starved of investment.
Another is risk - if multiple projects are competing for resources within the NPD project portfolio, all other things being equal, the one with the least technical risk and/or commercial risk could be the more optimal one to pursue.
The 70 20 10 rule is also a good one - see https://hbr.org/2012/05/managing-your-innovation-portfolio
That research indicates that "Companies that allocated about 70% of their innovation activity to core initiatives, 20% to adjacent ones, and 10% to transformational ones outperformed their peers, typically realizing a P/E premium of 10% to 20% (see the exhibit "Is There a Golden Ratio?")." McKinsey's Three Horizons framework effectively says the same thing. Make sure you have a balanced portfolio and bring that into project evaluation and selection criteria.
Regards,
Brian
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Brian Martin
Original Message:
Sent: 06-05-2019 12:51
From: Bryan Elanko
Subject: How does your organization currently tackle product development project trade-offs?
Every organization gradually reaches a point where it has too many customer obligations in the form of new products/projects to tackle. It's easy for an organization to focus on projects that sustains its business and lose sight of the future. In some rare situations, the deliberate focus on new, highly risky projects takes away much needed revenue from product revisions and enhancements.
Given this predicament, what are few financial and non-financial techniques your organization uses to weigh breakthrough, platform, derivative, support projects against each other? What are the limitations, challenges you notice in that process?
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Bryan Elanko
Director of Strategy Development
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