MakingPortfolioManagementMoreEffective.ppt

New Problems, New Solutions:Making Portfolio Management More EffectiveWORKING PAPER No: 9Authors:Dr. Robert G. CooperDr. Scott J. EdgettDr. Elko J. KleinschmidtThis article was published in Research Technology Management(Industrial Research Institute, Inc.) Volume 43, Number 2, 2000.34 Stone Church Road Suite 111Ancaster, Ontario L9K 1P4 Canada(905) 304-8797 Fax: (905) 304-8799A member company of the Product Development Institute© 2000 Product Development Institute1New Problems, New Solutions:Making Portfolio Management More EffectiveThere are two ways for a business to succeed at new products: doing projects right, and doing theright projects. Most new product prescriptions focus on the first route – for example on effectiveproject management, using cross-functional teams, and building in the voice of the customer.Portfolio management, the topic of this article, focuses on the second route, namely on doing theright projects.In spite of all the hype around the topic of portfolio management, and the myriad portfolio methodsproposed, managers have identified major problems and have raised serious concerns about theeffectiveness of portfolio techniques. This article reports the results of continuing research intoportfolio management practices and results: it highlights some of the problems, and offers sometentative solutions – solutions that have been witnessed in typical firms as they try to address theissue of picking the right projects (see box insert).Portfolio Management is Vital, But FlawedResearch into Portfolio ManagementPortfolio management is fundamental to successfulThis article reports the findings of a continuingnew product development. Portfolio management isabout resource allocation - how your business spendsits capital and people resources, and whichresearch investigation into portfolio managementpractices and performances, done in part with IRI-member companies. Part I of the study looked at 35leading firms’ portfolio management approaches,development projects it invests in. Portfolioand was reported in this journal [1]. Part IImanagement is also about project selection - ensuringconsidered a much larger sample of companies (205that you have a steady stream of big new productwinners! And portfolio management is about strategy:it is one method by which you operationalize yourbusinesses), and was able to correlate performanceresults versus methods used [2]. Part III of theresearch, reported here, probes some of thedifficulties uncovered in portfolio management, andbusiness’s strategy.what some companies are doing to address thesedifficulties. The 30 companies in Part III wereRecent years have witnessed a heightened interest inportfolio management, not only in the technicalcommunity, but in the CEO’s office as well. Accordingdeliberately chosen, based on prior knowledge oftheir approaches and the fact that they were activelyaddressing portfolio management issues. Furtherthey are more representative of industry at largeto our recent survey of IRI members, portfolio(typical companies, as opposed to Part I, whichmanagement has gained prominence for a number offocused on leading firms only). The research is casereasons [3]:† Financial – to maximize return on R&D andstudy in nature (i.e., interviews with management inthe firms).technology spending† To maintain the business’s competitive position† To properly allocate scarce resources† To forge the link between project selection and business strategy† To achieve a stronger focus† To yield the right balance of projects and investments† To communicate project priorities both vertically and horizontally within the organization† To provide greater objectivity in project selection.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute•2The problem is that effective portfolio management has proven to be an elusive goal for manybusinesses. Management rated the effectiveness of their project selection and portfolio managementmethods, and the results are provocative [4] (Figure 1):Portfolio methods in use were given high marks for ensuring strategic alignment – that R&Dspending and projects undertaken are consistent with the business’s strategy• Portfolio methods also fared well in terms of selecting high value projects• But portfolio methods were rated much weaker in terms of:† Having the right number of projects (there are far too many projects in most business’sportfolios)† Promoting timely completion of projects (there is gridlock in the pipeline)† Having the right balance of projects (too many minor, incremental projects).Figure 1: Businesses' portfolio performance results are on average fairly good across six key metrics.But there exist weaknesses in terms of too many projects, pipeline gridlock, and the right balance ofprojects. Also there are major difference between the Best versus the Worst performers.The Best (top 20%)Projects are alignedAll Businesseswith business's objectivesThe Worst (bottom 20%)Portfolio containsvery high value projectsSpending reflectsthe business's strategyProjects are doneon time (no gridlock)Portfolio has goodbalance of projectsPortfolio has rightnumber of projects12345PoorExcellentBusinesses were categorized into 3 groups: Best, Worst and All. Best and Worst are top and bottom20% in terms of their portfolio performance. Source [4].All differences between Best and Worst are significant at the 0.001 level.Performance metrics are rank-ordered according to mean scores (highest mean scores at top offigure.Note the major significant differences in Figure 1 between the Best and Worst performers: clearly anumber of companies are struggling with their portfolios, while a minority seem to have it right!New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute3Some DifficultiesWhy is management so disappointed with their first attempts at portfolio management? More in-depth research has probed these issues, and has identified four main challenges or problem areas inportfolio management:1. Resource balancing: Resource demands usually exceed supply, as management has difficultybalancing the resource needs of projects with resource availability.2. Prioritizing projects against each other: Many projects look good, especially in their early days;and thus too many projects “pass the hurdles” and are added to the active list. Managementseems to have difficulty discriminating between the Go, Kill and Hold projects.3. Making Go/Kill decisions in the absence of solid information: The up-front homework is oftensubstandard in projects, the result being that management is required to make significantinvestment decisions, often using very unreliable data. No wonder so many of their decisions arequestionable!4. Too many minor projects in the portfolio: There is an absence of major revenue generators andthe kinds of projects that will yield significant technical, market and financial breakthroughs.A lack ofLowResourcesfor NewImpactProductson Sales,ProfitsToo Manysmall, lowvalueprojectsToo manyprojects forthe limitedresourcesavailableNo PortfolioPoorManagementCycleProcessPoor projectTimesprioritization;failure to killprojectsPoor jobNo NewProductProcessPoor dataon projectsdone onprojects –weak marketstudies, poorlaunch,HighFailureRatesinadequatetestingFigure 2 – A lack of resources, no portfolio management, and no new product process (left) arethe root cause of many problems, which feed on one another, resulting in a downward spiral ofnegative effects and results.These four problems are clearly interlinked. For example, the inability to discriminate betweenprojects invariably leads to a resource balancing problem. Insufficient resources on key projects inturn results in project teams short-cutting key activities. Cutting corners on projects results in poorinformation and difficulty in making sound Go/Kill decisions. Inadequate resources and poorNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute4information invariably leads to a tendency to do short-term, quick and simple projects. And so theportfolio problems continue, feeding one another in an endless downward spiral (Figure 2).Consider each of these four challenges in more detail:Problem #1: Too many projects, not enough resources.Pipeline gridlock plagues many business’s portfolios: There are simply too many projects and notenough resources to do them well. This is a universal complaint within product development groupseverywhere. The demand for more new products than ever coupled with corporate restructuring hashelped to create this resource crunch:One frustrated new product project leader at her company’s technology conference exclaimed: “Idon’t deliberately set out to do a bad job. Yet, when you look at the job that the project leadersaround here do, it’s almost as though our goal is mediocrity. But that’s not true ... we’re goodproject leaders, but we’re being set up for failure. There simply isn’t enough time and not enoughpeople or the right people to do the job we’d like to do!” She went on to explain to seniormanagement how insufficient resources and budget cuts coupled with too many projects wereseriously compromising the way key projects were being executed. She was right! The point is:the resource commitment must be aligned with the business’s new product objectives, strategyand processes for positive results [5].The lack of resources is part of the problem. The other side is the failure to allocate resourceseffectively. Here portfolio tools and methods are partly at fault, along with a lack of will on the partof senior management to cut back the number of active projects – to say “no” to some worthwhileinitiatives.The fact is that most project selection and portfolio management methods do a poor job of resourcebalancing. Projects are evaluated, Go decisions are made, but resource implications are often notfactored in.Example: One of the most popular methods for evaluating projects and making Go/Killdecisions is the use of financial models, such as NPV [2,7]. More advanced versions introduceprobabilities and uncertainties into the financial calculation. Management is presented with theNPV of the projects, along with probability distribution curves. These same models, while soelegant in their handling of financial estimates (revenues, costs, profits) are notably lacking intheir handling of the resource constraint problem: resource availability is rarely part of thefinancial calculation.The majority of project selection techniques are quite weak when it comes to making Go/Killdecisions or choosing the portfolio in the light of constrained resources. There is really no way tocheck that the required resources are available when using most of these selection tools. Indeed theseselection tools consider individual projects one-at-at-time and on their own merits, with little regardfor the impact that one project has on the next. Worse yet, people resources are assigned to projects,but only later is it discovered that the same resources are committed to multiple projects, and thatsome people are committed 150% of their time.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute5In one major beverage company, there were constant complaints that major bottlenecks wereencountered in new product projects in the package development department. A demandanalysis was undertaken on a project-by-project basis; only then was it discovered how heavilycommitted certain players were. Each project team member was assigned to projects (numberof person-days each month). When the packaging department’s time commitments weretotaled up across all active projects, it turned out that this three-person group had beencommitted about 100 person-days each month. Figure it out: that’s a 160% commitment. Nowonder there were logjams in the process!The results of too many projects in the pipeline are serious. Here are some of the negative effectswe’ve observed:1. Time to market starts to suffer, as projects end up in a queue waiting for people and resources tobecome available.A senior technology manager in one Xerox division, concerned about project timelines,undertook a quick survey. He picked a day at random, and sent an e-mail to every projectleader in his division: “How much work got done on your project today?”. The shocking news:more than three-quarters of the projects had no work done on them at all! Subsequent follow-uprevealed that a minority had legitimate reasons for inaction – waiting for equipment to bedelivered, or waiting for tests to be completed. But the great majority were simply in a queue,waiting for people to get around to doing something on them. His best guess was that he couldhave halved time-to-market for most projects simply by having fewer active projects underway,and thereby avoiding queues2. People are spread very thinly across projects. With so many “balls in the air”, people start to cutcorners and execute in haste. Key activities may be left out in the interest of being expedient andsaving time. And quality of execution starts to suffer. The end result is higher failure rates and aninability to achieve the full potential of would-be winners.One major chemical company undertook an audit of its new product practices and performanceacross its many businesses. One common conclusion, regardless of business unit, revealed alack of good market knowledge and customer input in the typical new product project. A taskforce was set up to study why. Their conclusions: marketing people were so thinly spreadacross so many new product projects that they barely had time to oversee the launch of newproducts, let alone even think about doing market studies and solid market research.3. Quality of information on projects is also deficient. When the project team lacks the time to do adecent market study or a solid technical assessment, often management is forced to make continuedinvestment decisions in the absence of solid information. And so projects are approved that should bekilled. The portfolio suffers.4. Finally, with people spread so thinly across projects, and in addition, trying to cope with their “realjobs” too, stress levels go up and morale suffers. And the team concept starts to break down [6].New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute••Problem #2: Project selection methods fail to discriminate between projectsMost project selection tools - for example scoring models and financial tools - consider theproject against some hurdle or “minimum acceptable value”. In the case of NPV, for example, theNPV is calculated using a risk adjusted cost-of-capital. If the NPV is positive, the acceptable hurdlerate is achieved, and the project is deemed a Pass.The trouble is, lots of projects pass the hurdles. What these methods really fail to do is provide for aforced ranking of projects against each other. Projects are rated against objective criteria, but arerarely force-ranked against each other. So there is little discrimination between projects: they are allGo’s!An international banking organization had established a well-oiled new product process,complete with rigorous Go/Kill decision points built in. These Go/Kill decisions were based inpart on a scoring model and also on traditional profitability criteria. The problem is that manyprojects “passed” the hurdles at the gates, and so kept getting added to the active project list.As the list got longer and longer, the resources became spread thinner and thinner! The gatingmethod looked at projects, each on their own merits, but failed to distinguish the top priorityones from the rest.Forced-ranking of projects means making tough decisions: The result of this forced-ranking exerciseis a prioritized list of projects, with the best ones at the top. Projects are listed until the business runsout of resources. Below that point, projects are put on hold or killed outright. But all too often thesetough decisions are not made: as one executive put it, “No one likes to drown puppies in ourbusiness!”This lack of discrimination among projects - where the best rise to the top of the list -is in part dueto weaknesses in the particular selection tools used:NPV was designed for one-off decisions - for example, the decision to buy a new piece ofequipment. But NPV was never meant for portfolio decisions, where multiple projects competefor the same resources. And ranking projects according to their NPVs does not yield the rightportfolio either – the method ignores resource constraints. Finally, NPV calculations are alwayssuspect in the early stages of a new product project. As one senior manager remarked: “Whatnumber do you want to hear? The project team always delivers the right number to get theirproject approved!”Scoring models are valuable decision aids for evaluating projects. But they too tend to rateprojects against absolute criteria, rather than against each other. Admittedly, one might considerranking projects according to their Project Scores. But again the issues of resource constraintsand “bang for buck” are ignored:One major financial institution developed a scoring model to rate projects. Four fairly typicalcriteria were used: strategic fit and importance; market attractiveness; competitive advantage;and magnitude of the profit opportunity. Projects were scored on these criteria by seniorNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute6•Lowhlityessuccmanagement on zero-to-ten scales; and the scores were added to yield a Program AttractivenessScore. Projects falling below a certain minimum score were discarded, and the remaining oneswere rank-ordered according to the Attractiveness Score.A review of the resulting three-page prioritized list of projects revealed an artifact of theranking scheme. All the big-hit projects were on page 1 at the top of the list, and the small oneson page 3. But a closer review of the projects showed that many of these big-hit projects alsoconsumed large resources, while some of the projects on pages 2 and 3 of the list, althoughhaving lower scores, were also relatively inexpensive to do. The scoring model had missed thenotion of efficient allocation of resources.A final complaint about scoring models is that often they fail to discriminate well. They tend toyield middle-of-the road scores – 60 out of 100 – which makes it difficult to spot the stars fromthe dogs. This is especially true when a large number of scoring criteria are used: high scores onsome criteria cancel out low scores on others, and the result regresses towards the mean – aproject score of 50 or 60 out of 100.Bubble diagrams, another popular tool for visualizing one’s portfolio, has the advantage oflooking at all projects together. And resource requirements are displayed by the size of thebubbles or shapes (Figure 3) [7]. The problem is that bubble diagrams tend to be informationdisplays only – a discussion tool – and do not generate a list of prioritized projects.The three axes are:X: Time to Launch date (a proxy forrisk)Y: NPV (net present value $000)Z: Probability of commercialsuccess based on New Prod model[(6)]Projects are shown as spheres,cubes etc.The shapes denote degree oftechnological fit with company(spheres are high; cubes low).I-bars denote range of NPV, basedon At Risk model (Monte Carlosimulation)HigProbabiLong Time to Launch Zeroof SFigure 3 – The Risk-Reward Bubble diagram, as used at Procter & Gamble,portrays projects in terms of NPV, commercial success probability, and time tolaunch (7).New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute7Problem # 3: Making Go/Kill decisions in the absence of solid informationThis issue was mentioned in the discussion of Problem #1 above, but it’s so pervasive that weexpand on it here. Here’s a typical case:A major tool manufacturer has dozens of development projects underway at any one time. Inorder to help prioritize projects and make better Go/Kill decisions, management hasimplemented a “Go to Development” gate decision point. The project team is required tosubmit a Business Case, which includes estimates of market size, expected revenue andprofits. These data are key inputs to the prioritization decision. The trouble is, these numbersare best guesses, often based on numbers pulled out of the air. Hence management is lulledinto believing that they are making rigorous Go/Kill decisions based on objective criteria; inreality, the numbers they are using to make these decisions are pure fiction.Early in the life of a project, management must make some important Go/Kill and resourcecommitment decisions on specific projects. The dilemma is that the up-front homework is not donewell enough to provide the quality of information that management needs to make sound decisions.For example, a study of over 500 projects in 300 firms revealed major weaknesses in the front-end ofprojects: weak preliminary market assessments; barely adequate technical assessments; dismalmarket studies and marketing inputs; and deficient business analyses, on average [8]. These arecritical homework activities, yet in study after study, they are found wanting: the up-front homeworksimply does not get done well [9]. Even worse is that these activities are strongly linked to ultimateproject outcomes: the greatest differences between winning products and losers is in the quality ofexecution of the homework activities of the project.Why is quality of execution of these early stage activities so pivotal to new product success? Thereare two reasons we observe:• When the quality of this early stage work is better, an excellent foundation is laid for the project.Thus, subsequent activities are more proficiently executed - better product design, better testing,better launch and production start-up - and so success rates rise [10]. As an example, better up-front homework usually results in sharper customer input which in turn means earlier, moreaccurate and more stable product definition. Note that unstable product specs is one of the majorcauses of long cycle times; while sharp, early product definition that is fact-based is stronglyconnected to product profitability [11].• When the early work is done better, market and technical information on the project is superior.Thus, management has the information it needs to select the winning projects (and to remove thedogs). The result is a much better portfolio of projects, and again higher success rates. Forexample, bad market information plagues many new product projects. Lacking good data onmarket size, expected revenue and pricing makes it difficult to undertake a reliable financialanalysis. Indeed, one company’s analysis of the accuracy of its financial analyses undertaken justprior to Development revealed a 300% error in NPV estimates on average! Since so many firmsrely on NPV numbers as the dominant decision criteria [12], such errors render the decision-making process a hit-and-miss exercise. One might be better off tossing a coin!New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute8The overriding message here is doing projects right will ultimately lead to better project selectiondecisions, hence higher odds of doing the right projects. “Right projects right” becomes the means toachieving the overall goal of a higher success rate.Problem #4: Too many small projects, too few major hitsThe shortage of major hits or big breakthroughs in the portfolio is a problem common to many firms(Figure 2). Anecdotal evidence from our research suggests that there are myriad reasons for this:• A preoccupation with financial results and over-emphasis on shareholder value (financialevaluation techniques inevitably favor small, well-defined, fast projects over long term, lessdefined ones).• Management impatience and their desire for some quick hits. One executive called this the Niketheory of management : “Just go do it!”.• A lack of discipline: “Urgent things always take precedence over important things!” exclaimed afrustrated manager, annoyed with his business’s preoccupation with quick-hit projects.• The dynamic nature of markets and the competitive situation, making it difficult to predict thelong term (and hence more difficult to predict and justify long term projects).• The difficulty in finding major revenue generators – markets are mature; and the opportunitiesfor major breakthroughs just are not there, according to some people in certain industries.Short term projects – extensions, modifications, up-dates, fixes – are clearly important projects if thebusiness wishes to remain competitive and keep its product line current. But if these projectsconsume almost all your development resources, the issue is one of balance. A certain proportion ofyour development resources must be committed to bolder projects that promise breakthroughs, or tochange the basis of competition: genuine new products, platform developments, and even technologydevelopments.Part of the problem is a lack of a product innovation strategy that gives direction to the business’sdevelopment efforts and spending priorities. With no strategy in place, tactics take over; and tacticsfavor the small, quick projects. Another root cause is the lack of deployment decisions in thebusiness. Many companies we interviewed did not consciously address the deployment or resourceallocation decision across project types. For example, there is no attempt to set aside envelopes or“buckets” of money for different project types – major projects, long term projects, technologydevelopments versus shorter projects, extensions, modifications and fixes [13]. With no consciousenvelopes or buckets in place, every would-be project is thrown into the same bucket, and the resultsare predicable: the quick, short-term and well-defined extensions, modifications and fixes win out inthe competition for resources, often to the longer run detriment of the business.Some Solutions: First Things FirstFix the quality of information problem! No matter how elegant or sophisticated your portfolioselection and decision tools, if the information input is poor, then so will your decision-making be.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute9As one manager exclaimed, “If we had spent as much effort improving the quality of informationas we did on the software for our new portfolio model, we would have been further ahead. Theelegance of the model far exceeds the quality of the data inputs!”How can your business strive for better quality information on its projects? Many companies haveadopted a stage-and-gate approach to managing their new product projects in order to drive newproducts to market – see Figure 4 [14]. Stage-GateTM approaches are relatively common in industrytoday: an estimated 60% of U.S. product developers now employ a Stage-Gate method in theirproduct development efforts [15]. So we do not describe stage-and-gate processes in detail here.Figure 4: The typical Stage-GateTM new product process has five stages, each stage preceded by agate. Stages define best practice activities and deliverables, while gates rely on visible criteria forGo/Kill decisions. An estimated 60% of product developers in the U.S. now employ a Stage-Gateprocess to guide their development efforts. Source [15].InitialScreenSecondScreenDecision onBusiness CasePost-DevelopmentReviewPre-CommercializationBusiness AnalysisPostImplementationReviewGate1Stage1Gate2Stage2Gate3Stage3Gate4Stage4Gate5Stage5IdeationPreliminaryInvestigationDetailedInvestigation(Build BusinessDevelopmentTesting &ValidationFull Production& Market LaunchCase)Stage-Gate processes are instrumental in improving the quality of information generated in yourprojects:1. First, Stage-Gate methods define the key tasks, activities and accountabilities within each stage.Thus, in the typical Stage-Gate process, there is a heavy emphasis on the up-front or front-end ofthe new product process, and assurances that the market information activities are conducted inconcert with the technical appraisals.2. Next, gating processes define the deliverables required for the gate decision: Every gate has amenu of deliverables. Deliverables are a list of information items that senior management needsin order to make effective Go/Kill decisions at each gate. Thus project teams are well aware ofwhat information they must deliver; these deliverables becomes the team’s objectives.3. Finally, Stage-Gate methods specify the criteria against which each project is evaluated.Gatekeepers (the senior management) judge the project against a list of criteria, such as strategicfit, technical feasibility, market attractiveness and competitive advantage. If the discussion thatcenters on each criterion results in shrugged shoulders and comments like “we’re not sure”, thenNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute10this is a sure signal that the quality of information is sub-standard: the project is recycled to theprevious stage rather than being allowed to progress.Our benchmarking studies, which by now include more than 300 companies, reveal that thatbusinesses that boast such a new product process fare much better: higher success rates on launch(by 37.5%); meet new product sales objectives more so (88% better); and meet profit objectives moreso (72.0% better) [16].So step #1 is to overhaul your new product process: install a Stage-GateTM process complete withdefined stage activities that emphasize the up-front homework; a menu of deliverables for the keydecision points or gates; and defined criteria at each gate against which the project is judged.Experience dictates that it is very difficult to implement portfolio management without an effectivenew product process, such as Stage-Gate, in place.Next Step: Introduce Resource Capacity AnalysisThe problem of too many projects and too few resources can be partly resolved by undertaking aresource capacity analysis. This analysis attempts to quantify your projects’ demand for resources(usually people, expressed as person-days of work) versus the availability of these resources. Youcan do this analysis in one of two ways [17]:1. Do you have enough of the right resources to handle projects currently in your pipeline?Begin with your current list of active projects. Determine the resources required to complete themaccording to their timelines. Then look at the availability of resources. You usually find major gapsand hence potential bottlenecks. Finally, identify the key resource constraints – the departments,people or capabilities that you run out of first (see “Two Ways to Analyze Resource Capacity vs.Demand”).2. Do you have enough resources to achieve your new product goals? Begin with your newproduct goals. What percent of your business’s sales will come from new products? Now, determinethe resources required to achieve this goal. Again you will likely find a major gap between demandbased on your goals, and capacity available. It’s time to make some tough choices about the realismof your goals or whether more resources are required (again, see “Two Ways” for details).This capacity analysis is not a total solution. But it does provide information necessary to begin workon a solution. The experience in companies is that capacity analysis often:† Detects far too many projects in the pipeline, resulting in an immediate prioritization andpruning effort – the result often is that half the projects are killed or put on hold!† Causes senior management to rethink their goals (often new product goals, such as percentageof sales by new products, are based on wishful thinking or on an unrealistic corporate dictum)† Identifies departments or groups that are major bottlenecks in the innovation process, leadingto decisions to increase or shift personnel.Resource capacity analysis is a fairly tactical move, but it is relatively straightforward to undertake,and provides real insights into the nature and magnitude of the resource constraint problem. So whenNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute11§§§§§§§§§§§§§looking at resources and resource allocation, this is a good place to begin. You cannot manage whatyou cannot measure!Two Ways to Undertake a Resource Capacity-Versus-Demand Analysis [18]1. Demand Created by Your Active Projects:Determine demand:Begin with your current list of active development projects, prioritized from best to worst (use a scoring modelto prioritize projects, or one of the financial approaches mentioned above). Develop a prioritized project listtable.Then consider the detailed plan of action for each project (use a timeline software package, such as M icrosoftProject).For each activity on the timeline, note the number of person-days of work (or work-months), and what group (orwhat department) will do the work.Record these work-day requirements in the prioritized project list table – one column per department. In othercolumns, note the cumulative work-days by department.What is your capacity?Next, look at the capacity available – how many work -days each department (or group) has available in total.(These work-days look at all people in that group or department, and what proportion of their time they haveavailable for new products. Be sure to consider their “other jobs” in this determination – for example, the factthat a Marketing group likely has 90% of their time consumed by day-to-day assignments).Then mark the point in your prioritized-list-of-projects table where you run out of resources – where demandexceeds capacity.Results:You will likely learn three things from this exercise:• You really do have too many projects, often by a factor of two or three;• You can see which department or group is the constraining one; and• You also begin to question where some departments spend their time (and why such a sm all proportion isavailable to work on new products!).2. Demand Generated by Your Business’s New Product Goals:Determine demand:Begin with your new product goals – what sales or percentage of sales you desire from new products.Translate these goals into numbers of major and minor new product launches annually.Then, using your attrition curve – how many Stage 1, Stage 2, Stage 3, etc. projects does it take to yield onesuccessful launch? – determine the number of projects per year you need moving through each stage.Next, consider the work-days requirements in each stage, broken down by function or department. The numbersof projects per stage combined with the work-days requirements yield the demand – namely, the work-days andpersonnel requirements to achieve your business’s new product goals, again by department.What is your capacity?Now turn to availability – how many work -days are available per department (as per the second part of method1 above).Results:Again you’ll likely find a major gap between demand and capacity.At this point, you either modify your goals, making them a little more realistic; or make tough choices aboutadding resources or reassigning people in order to achieve your goals.These two exercises can be done either with work-days (people x days) or dollars as the measure of resources.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute12Step 3: Develop a Product Innovation and Technology Strategy for Your BusinessDeveloping a product innovation and technology strategy (PITS) for you businesses is one way toimprove the balance of projects in the portfolio [18]. Some would argue that such a strategy isnecessary to ensure a reasonable balance between short term, quick small projects and majorbreakthroughs; and that if your portfolio has too many small projects consuming too many resources,then chances are it’s because you lack an innovation strategy, or have failed to operationalize it.Strategy begins when you start spending money. Thus, strategy guides the split in resources acrossproject types – between short term and long term projects; between high risk and low risk initiatives;between new products and platform development versus extensions, up-dates and fixes.Your product innovation strategy should …• Define the goals for your new product and development effort; for example what percent of yourbusiness’s sales will come from new products? And what percent of profits or growth?• Define arenas for focus – the key markets, technologies and product types that your developmenteffort will focus on.• Define deployment of resources – approximate splits in resources or spending across projecttypes (platform developments; new products; extensions, fixes and up-dates); across markets;and across product types.• Define the attack plan (or strategic stance) for development; for example being the innovator(versus fast follower) in a given arena; or focusing on superior product performance versus bestcost.Example: At Allied Signal, senior management in each Business Unit first defines its businessvision, goals and strategy. Then it translates this strategy into a spending split in technicalresources across three project types: platform projects, new product projects and “other”(modifications, fixes, improvements). Once the spending split is decided across project types,then projects within each of the three categories are listed and ranked against each other.Different criteria are used to rank the projects within each category – strategic criteria forplatform developments; multiple criteria typical of a scoring model for new products; andfinancial criteria for “other”. In effect, three separate portfolios of projects are defined; andprojects within one category or portfolio do not compete for resources against projects inanother category. In this way, resource spending is forced to reflect the business’s strategy.Final and Major Step: Integrate Portfolio Management into Your New ProductProcessBy putting in place a Stage-Gate process, you are taking the first step to effective portfoliomanagement. First, quality of information should improve. Second, the gates should at minimum killpoor projects, thereby improving the overall quality of the portfolio. And finally, a gating processengages senior management in the right way. Next, introducing resource capacity analysis is also agood step: you’ll have a much better understanding of resource needs, resource availabilities andpotential bottlenecks.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute13Where Stage-Gate processes fall short is project prioritization and resource balancing (Problems #1and #2 above). That’s the role of portfolio management methods.Portfolio ManagementWhat is portfolio management? Portfolio management goes beyond mere project selection, and it ismore than simply making tough Go/Kill decisions at gates. Portfolio management is a dynamicdecision process, whereby a business’s list of active new product (and R&D) projects is constantlyup-dated and revised; new projects are evaluated, selected and prioritized; existing projects may beaccelerated, killed or de-prioritized; and resources are allocated and re-allocated to the activeprojects [19].A new product process, such as Stage-Gate, is a step in the right direction, but is only a partialsolution. Gating processes focus on individual projects, and evaluate each project on its own merits;they deal with the fingers. By contrast, portfolio management, by considering all projects together,looks at the fist!Two Fundamental Approaches, Many Different Tools or ModelsOur research reveals a number of companies experimenting with different approaches to portfoliomanagement. Note that these attempts are quite new – portfolio methods have been in place for anaverage of three years – thus the approaches are tentative [20]. Virtually all the firms finding successhere had already implemented a systematic new product process (above), and had designated onegate at the point where portfolio management kicks in. Typically this gate is Gate 2 (which precedesthe Detailed Investigation stage in Figure 4) or Gate 3 (which opens the door to Development).From this point on, however, there is divergence of opinion, with many different portfolio tools andtechniques employed. Indeed, two broad portfolio approaches were observed in practice, and eachhas its own merits.We first present a summary of the various portfolio tools used. Next we outline the two fundamentalapproaches to portfolio management. Note: Although the two approaches share some of the sametools, and on the surface look similar, each is fundamentally different than the other in terms of howit is put into practice.Portfolio Tools UsedA variety of portfolio tools, charts and techniques are employed to assist in the review of all projects.Our research uncovered three goals of portfolio management, and different tools appear best suitedto each of the goals [21]. The three goals are:Goal # 1 – Value Maximization: to allocate resources so as to maximize the value of the portfolio interms of some business objective, such as profitability. Tools used to assess “project value” include:New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute14••••NPV: The project’s net present value (or some other financial metric) is determined and mustexceed some minimum acceptable value. Projects can also be rankled by NPVs.ECV: ECV is a variant of NPV, and introduces probabilities of technical and commercial successalong with an incremental decision process (options pricing theory) [22].Check lists: A list of Yes/No questions is used to rate the project in check list format. A suitablepattern of scores (often the absence of definite “No’s”) signals a Pass decision.Scoring model: Decision-makers rate the project on a number of questions that distinguishsuperior projects, typically on 1-5 or 0-10 scales. These ratings are added to yield a quantifiedProject Attractiveness Score, which must clear a minimum hurdle. This Score is a proxy for the“value of the project to the company”, but incorporates strategic, leverage and otherconsiderations beyond just the financial measures.The values of projects to the business are determined, and projects are ranked according to this“value” until there are no more resources.Goal # 2 – Balance: to achieve a desired balance of projects in terms of a number of parameters:long term projects versus short ones; high risk versus sure bets; and across various markets,technologies, and project types.Visual charts display balance in new product project portfolios. These visual representations includeportfolio maps or bubble diagrams, such as the risk-reward bubble diagram used at Procter &Gamble, plotting NPV, probability of success and time-to-market – Figure 3 [23]. Other visualsinclude pie charts that show the breakdown in numbers of projects or spending by project types,product lines or markets [24].Goal # 3 – Strategic Direction: to ensure that the final portfolio of projects reflects the business’sstrategy, that the breakdown of spending across projects, areas, markets, etc., mirrors the business’sstrategy and that all projects are “on strategy”.The Strategic Buckets approach is used by some leading firms to ensure that portfolio spendingmirrors their strategic priorities. Here, management pre-allocates funds to various “buckets”: projecttypes, markets, technologies or product lines. These splits are based on strategic considerations(example: Allied Signal splits development resources into three buckets: platform projects, newproducts, and minor projects). Projects are categorized by bucket, and then rank ordered within abucket. Thus, multiple lists or portfolios of projects are created, with each portfolio managedseparately.But how are these various portfolio tools used in conjunction with a gating process? There are twofundamentally different approaches:New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute15Portfolio Approach #1: The Gates dominate the processHere, the philosophy is that if your gating or Stage-Gate process is working well, the portfolio willtake care of itself. Therefore, make good decisions at the gates! The emphasis of this approach is onsharpening gate decision-making on individual projects.In Approach #1, senior management or gatekeepers make Go/Kill decisions at gates on individualprojects. Also at gates, the project is prioritized and resources are allocated. Gates thus provide an indepth review of projects, one project at a time, and project teams leave the gate meeting withcommitted resources - with a check in hand! This is a real time decision process, with gateshappening many times throughout the year. By contrast, the periodic Portfolio Review, held perhapsonce or twice a year, serves largely as a check to ensure that real time gate decisions are good ones.This “gates dominate” approach is often used by companies which already have a Stage-Gate processin place, and one that is working well. They then add portfolio management to their gating process,almost as a complementary decision process. Our research found this approach most often in largercompanies, in science-based industries, and where projects are lengthy (such as the chemical processindustry).Portfolio Approach #2: The Portfolio Review dominates the processThe philosophy in the second approach is that all projects must compete against each other. A singledecision on all projects replaces one of the gates in the gating process.Here, the leadership team of the business makes Go/Kill and prioritization decisions at the PortfolioReviews, where all projects are up for auction and are considered on the table together. This Reviewoccurs 2-4 times per year. The gates in the Stage-Gate process then serve merely as checks onprojects - that projects remain sound and are proceeding as they should.The result of the “portfolio review dominates” approach is a more dynamic, constantly changingportfolio of projects. The method may suit faster paced companies, such as software and electronicsfirms. But it requires a much stronger commitment of senior management to be engaged in thedecision process, spending the time to look at all projects together and in depth several times peryear.Consider how each approach works in more detail:Approach #1: Gates DominateHere, projects proceed through the Stage-Gate process as portrayed in Figure 4. Projects are ratedand scored at gates, usually by senior management, especially at more critical gates (Gate 3 andbeyond in Figure 4).New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute16Go - isPass/Kill:Project is evaluatedagainst Must Meet &Should Meet criteria.Does it “pass” thesecriteria?PassKillPrioritization:Project is compared toActive & On-Holdprojects. Does itimprove the portfolio?Resources areallocated.resourced;becomes ActiveProjectPlacedOn HoldFigure 5 – Decisions at gates are a two-part process. The first part evaluates the project against a set ofMust and Should Meet criteria – a Pass vs. Kill decision. In Part 2, the project is prioritized against otherActive or On Hold projects.To introduce portfolio management, gates becomes a two-part decision (Figure 5). The first part orhalf of the gate is a Pass-versus-Kill decision, where individual projects are evaluated usingfinancial, checklist and scoring model valuation tools (described above).The second half of the gate meeting involves prioritization of the project under discussion versus theother projects (Figure 5). In practice, this means making a Go versus Hold decision; and if Go,allocating resources to the project. A rank ordered list of projects is displayed to see the relativeattractiveness of the project under discussion versus the other Active and On Hold projects. Here,projects can be ranked on a financial criterion (for example, NPV or better yet, the ECV) or on theProject Attractiveness Score derived from the scoring model.Additionally, the impact of the proposed project on the total portfolio of projects is assessed. Thequestion is: does the new project under discussion improve the balance of projects (or detract frombalance); and does the project improve the portfolio’s strategic alignment? Bubble diagrams and piecharts are the tools used for visualizing balance and alignment (outlined above).Note how the gates dominate the decision process in this Portfolio Method 1: Go/Kill, prioritizationdecisions and resource allocation decisions are made in real time right at the gate meeting. But otherprojects are not discussed and reprioritized at the gate; only the project in question is given a relativepriority level versus the rest.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute17What about looking at all projects together? That’s the role of Portfolio Reviews. In Approach #1,the Portfolio Reviews serve largely as a check that the gates are working well. Here the seniormanagement meets perhaps once or twice per year to review the portfolio of all projects:† Is there the right balance of projects?† The right mix?† Are all projects strategically aligned (fit the business’s strategy)?† Are there the right priorities among projects?If the gates are working, not too many decisions or major corrective actions should be required at thePortfolio Review. Some companies in our research indicated that they don’t even look at individualprojects at the Portfolio Review but they only consider projects in aggregate!Approach #1: A RecapThe gates are where the day-to-day decisions are made on projects in Method 1. Gates focus onindividual projects – one at a time – and are in-depth reviews. At gates, each project is evaluated andscored before moving on to the next stage – a real time decision process. At gates, poor projects arespotted and weeded out; and good ones are identified and prioritized accordingly. Note that resourcedecisions – committing people and money to specific projects – are made right at these gatemeetings. Thus the gates become a two-part decision process, with projects being evaluated onabsolute criteria in the first part (Pass/Kill decisions in Figure 6), followed by a comparison withother active and on-hold projects in the second part (Go versus Hold decisions). These gate decisionpoints are real time decisions.Portfolio Reviews, by contrast, are periodic meetings, held perhaps twice per year. They serve as acheck on the portfolio, and oversee the gate decisions being made. If the gates are working well, thePortfolio Reviews are largely a rubber stamp.Note that the portfolio reviewers and the senior gatekeepers are most often the same people withinthe business. The result of the gating process working in tandem with the Portfolio Reviews is aneffective, harmonized Portfolio Management Process (Figure 7, next page).Approach #2: The Portfolio Review DominatesApproach #2 uses many of the same portfolio tools and models described above, but in a differentway. The result is a more dynamic portfolio of projects. In this approach, the project enters theportfolio process typically after the first stage (at Gate 2 in Figure 4) when there is some dataavailable.Combined Portfolio & Gate 2 decision meeting:Here’s the main difference from Approach #1: Early in the life of projects occurs a combined Gate 2and Portfolio decision meeting. Here, all new Gate 2 projects along with all projects past Gate 2 arereviewed and prioritized against each other. Every project at Gate 2 and beyond is thus in theauction, and all these projects are ranked against each other. Active projects, well along in theirdevelopment, can be killed or reprioritized here; and resources are allocated here (not at gates). ThisPortfolio/Gate 2 decision meeting takes place about four times per year.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute18Portfolio Review:Business Strategy &New Product StrategyStage-Gate Process:This meeting is acheck on the gates:(drives both decisionprocesses)Gates are the keydecision points. Atgates…•reviews all the projectstogether•identifies StrategicProject status & scores•projects pass Must MeetCriteriaImperatives•are scored on Should•checks project prioritiesMeet Criteria•checks for portfolio•have Go/Kill decisionsbalanceDecisions &adjustmentsmade•projects are prioritized•resources are allocatedhereFigure 6: Portfolio Approach #1 relies on a gating process (right) to make the key decisions.The Portfolio Review (left) serves as a check. Both decision processes are driven by Strategy(Top).The role of gates in Approach #2 is very different than in Approach #1. Successive gates (after Gate2) are merely check points or review points. They:† Check that project is on time, on course and on budget† Check quality of work done – the quality of deliverables† Check that the Business Case and project are still in good shape.If No, the project could be killed at the gate, recycled to the previous stage, or flagged for the nextPortfolio Review/Gate 2 meeting.The major decisions, however, occur at the combined Gate 2/Portfolio decision point, which is amore extended, proactive meeting than Portfolio Reviews in Method 1. And although this is aperiodic process, it is almost real-time because this Portfolio/Gate 2 meeting is held every threemonths.An example: EXFO Engineering, a mid-sized entrepreneurial and very successful instrumentmanufacturer, has implemented both a Stage-Gate process and Method 2 Portfolio Management.Four times per year, the leadership team of this business, chaired by the CEO, evaluates thecomplete slate of new product projects during their Portfolio Review meetings. Any project at orbeyond Gate 2 is included in this prioritization exercise. Projects are rated on the basis of sixcriteria:† Confidence in the project team and in their proposed costs, revenues and schedules† Revenues (times a commercial risk factor) versus expenses (development andcommercialization costs; including a technical risk factor), over a 2 year period† Match to the strategic plan (specific growth directions, with a weighting factor on each)† Profitability index (return on investment)† Availability of technical resources and commercial strengths.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute19Projects are then force-ranked against each other. The result is a prioritized list, with someprojects placed on hold.The format of this vital, quarterly Gate2/Portfolio decision point is typically this: all Gate 2 andbeyond projects are “on the table”. The portfolio managers (senior management) first identify the“Must Do” projects - the untouchables. These are projects that are either well along and still goodprojects, or are strategic imperatives. Then, management votes on and identifies “Won’t Do’s” whichare killed outright.Projects are ranked:Next the projects in the middle are evaluated. There are different methods here:1. Some firms use the same criteria they use at gate meetings, and in some cases, the most recentgate 0-10 scores. That is, the Project Attractiveness Score from the gate meeting is used to rankorder the projects.2. Other managements re-score the projects right at the Portfolio/Gate 2 meeting (using a shorter listof criteria than the list found in the typical Scoring Model).3. Forced ranking on criteria is also used. Here management ranks the projects against one another -1 to N - on each criterion. Again a handful of major criteria are used, such as those used byKodak at its Portfolio Review [25]:† Strategic fit† Product leadership (product advantage)† Probability of technical success† Market attractiveness (growth; margins)† Value to the Company (profitability based on NPV).We recommend the forced ranking method, #3 above. This forced ranking method yields betterdiscrimination than a traditional scoring model, forcing some projects to the top of the list and othersto the bottom. One of the weaknesses of a scoring model, by contrast, is that projects tend to scoremiddle-of-the-road – everything is 60 out of 100. But any of the three methods above yields a listprojects, rank-ordered according to objective scores. Projects are ranked until one runs out ofresources. This ranked list is the first cut or tentative portfolio.Check for balance and strategic alignment:Next the proposed portfolio is displayed using some of the bubble diagrams and pie charts describedabove (summarized in Figure 7, next page). The purpose here is to visualize the balance of theproposed portfolio, and also to check for strategic alignment. If the tentative portfolio is poorlybalanced or not strategically aligned, projects are removed from the list, and other projects arebumped up. The process is repeated until balance and alignment are achieved.Approach #2: A RecapThe Portfolio/Gate 2 decision meeting is where the key decisions are made in Approach #2. ThePortfolio Review is really a Gate 2 and Portfolio Review all-in-one, and held 2-4 times per year. It ishere where the key Go/Kill decisions are made, and consequently is a senior management meeting.At this Portfolio/Gate 2 decision point, all projects at or beyond Gate 2 are on the table. The meeting:New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute20ProbabilityofTechnicalSuccess††††DSpots Must Do and Won’t Do projectsScores (forced ranking) the ones in the middleChecks for balance and strategic alignment (using various portfolio charts and bubblediagrams)Decides the portfolio: which projects, what priorities, how much resources.Prioritized Scored List of Active and On Hold ProjectsRisk-Reward Bubble DiagramProjectRank (PriorityLevel)Total ProjectScorePortfolioBalance FactorAdjusted TotalProject ScoreHighSoya-441801.1088PearlsBread andButterEncapsulated2821.0082BLegume N-23701.1077Spread-EaseACharcoal-Spread-Ease4751.0075Soya-44BaseCCharcoal-5800.9072BaseProjects onEncapsulatedSlow-ReleaseVersion 4Hold$10 M86420N2-Fix1801.0080**Reward (NPV)Slow-Release2701.1077*LegumeN-2Multi-Purpose375.9068Vigor-Betc..etc..Spending Breakdown by Project TypeOystersWhiteElephantsImprovements37.0%(Target = 30%)New Products19.0%(Target = 30%)Fund. Research7.0%(Target = 10%)Maintenance/Fixes22.0%(Target = 20%)Cost Reductions15.0%(Target = 10%)Figure 7 – In Portfolio approach 2, at the end of the project ranking exercise, the resulting portfolio of projects isdisplayed on various charts. These charts enable management to check for portfolio balance and strategicalignment.The gates serve mainly as a check. Here, projects are checked as they progress from stage to stage toensure that they are on time, on budget and still are good projects. Kill decisions are still made atgates to weed out poor projects. Gates rely on criteria, and the scores at these gates are often used asinputs to the Portfolio meeting.Approach #2 thus lashes together the two decision processes – the gating process and the PortfolioReview. Gate 2 is really the integrative decision point in the scheme, and the point where the twodecision processes intersect (Figure 8).Pros and ConsApproach #2 has some advantages (and disadvantages) versus Approach #1. Management indicatesthat it is easier to prioritize projects when looking at all projects on the table together (rather thanone-at-a-time at real-time gates). Additionally some people have difficulty with the two-part gateNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute21approach in Approach #1 and Figure 5: for example, how does one find resources for a good project,when that’s the only project being considered at the meeting? Finally, some managers like the notionthat prioritization of all projects is redone regularly - no project is sacred!There are disadvantages to Approach #2, and areas where Approach #1 is superior. Manymanagements believe that if projects are to be killed, then the project team should be there to defendthe project (or at least to provide up-dated information), such as happens at an in-depth gate meeting.Another criticism is that Approach #2 requires a major time commitment from senior management;for example, senior management in the mid-sized firm in the instrument business cited above takesthree days every quarter to conduct this Portfolio/Gate2 decision meeting! A final advantage ofApproach #1 is that gate reviews provide a much more in-depth assessment than is ever possiblewhen all the projects are considered at one single meeting.PortfolioReview -MassGate 2All projects are upfor auctionMust Do's identifiedWon't Do's killedThe Rest areforce-ranked oncriteria & prioritizedResources areallocatedBusiness Strategy &New Product StrategyStage-Gate ProcessGate1Stage 1Gate2Stage 2Gate3Stage 3Gate4Stage 4Gate5Stage 5PreliminaryInvestigationDetailedInvestigationDevelopmentTesting &ValidationFull Production& Market LaunchFigure 8 – In Portfolio Approach 2, portfolio management intersects with the new-productprocess (yellow oval). Projects are force-ranked against each other in this combinedPortfolio/Gate 2 decision meeting. Prioritization is established, and resources are allocated here.Subsequent gates serve as checks.Portfolio Management: ConclusionNew product portfolio management has become a vital topic in the last five years, particularly amongleading firms. For example, senior executives in top performing businesses consider new productportfolio management to be “of critical importance” [26]. A number of tools have been describedabove that help to select projects and visualize your portfolio. The choice of tool may not be thatcritical: Indeed the best performers use an average of 2.4 tools each – no one tool can do it all! Twodifferent approaches to portfolio management - where the gates dominate, and where the PortfolioReview dominates - have also been outlined. Both have their merits, and both are recommended.Regardless of which portfolio method or which specific tools you favor, do move ahead: choose amethod and implement it! Our research shows clearly that those businesses that feature a systematicportfolio management process – regardless of the specific approach - outperform the rest [27].New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute22Acknowledgements:The research into portfolio management has been generously supported by grants from EssoChemical Canada (Exxon Chemical in Canada), and the Innovation Research Centre at the MichaelG. DeGroote School of Business, McMaster University.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute23Endnotes:1. Cooper, R.G., S.J. Edgett, & E.J. Kleinschmidt. “Portfolio management in new product development: lessonsfrom the leaders – Part I”, Research-Technology Management, Sept.-Oct. 1997, 16-28; also: Cooper, R.G., S.J.Edgett & E.J. Kleinschmidt. “Portfolio management in new product development: lessons from the leaders – PartII”, Research-Technology Management, Nov.-Dec. 1997, 43-52.2. A study of portfolio management practices and what results were achieved (IRI member companies). See:Cooper, R.G., S.J. Edgett & E.J. Kleinschmidt. “Best practices for managing R&D portfolios”, Research-Technology Management, 41, 4, July-Aug. 1998, 20-33.3. Taken from: Cooper, R.G. Product Leadership: Creating and Launching Superior New Products. Reading, MA:Perseus Books, 1998, p 189; and based on a study reported in: Cooper, R.G., S.J. Edgett & E.J. Kleinschmidt. “Newproduct portfolio management: practices and performance,” Journal of Product Innovation Management, 16, 4, July1999, 333-351.4. See portfolio study cited in endnote 2.5. Example taken from: Cooper, R.G. “The invisible success factors in product innovation,” Journal of ProductInnovation Management, 16, 2, April 1999, 115-133.6. Also reported in: Crawford, C.M. “The hidden costs of accelerated product development,” Journal of ProductInnovation Management, 9, 3, Sept. 1992, 188-199.7. See this and other examples of bubble diagrams in Portfolio Management, endnote 6.8. New product success factors are reported in: Cooper, R.G. “New products: what separates the winners from thelosers”, in PDMA Handbook for New Product Development, ed. M. D. Rosenau Jr., New York, NY: John Wiley &Sons Inc, 1996.9. Success factors are defined in: Cooper, R.G. Winning at New Products: Accelerating the Process from Idea toLaunch. Reading, MA: Perseus Books, 1993. Also, an excellent review of success/failure studies is: Montoya-Weiss,M.M. & R.J. Calantone. “Determinants of new product performance: a review and meta analysis”, Journal ofProduct Innovation Management 11, 5, Nov. 1994, 397-417.10. See endnotes 9 & 10.11. Study reported in: Cooper, R.G. “Developing new products on time, in time”, Research & TechnologyManagement, 38, 5, Sept.-Oct. 1995, 49-57; and: Cooper, R.G. & E.J. Kleinschmidt. “Determinants of timeliness innew product development,” Journal of Product Innovation Management 11, 5, Nov. 1994, 381-396.12. See portfolio study cited in endnote 2.13. This strategic buckets method is described in Portfolio Management, endnote 6.14. Stage-GateTM processes are described in Winning at New Products (endnote 10) and Product Leadership(endnote 3).15. Griffin, A. Drivers of NPD Success: The 1997 PDMA Report (Chicago, Product Development & ManagementAssociation) 1997.16. Benchmarking study in: Cooper, R.G. & E.J. Kleinschmidt. “Benchmarking firms’ new product performanceNew Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute24and practices”, Engineering Management Review, 23,3, Fall 1995, 112-120.17. This resource capacity analysis method is taken from the article cited in endnote 5.18. PITS is described in a forthcoming article in Research Technology Management: Cooper, R.G. “Develop a PITS– a product innovation & technology strategy for your business (millenium issue).19. See Portfolio Management in endnote 6.20. As reported in the portfolio study cited in endnote 2.21. See study reported in endnote 1, Part I.22. For a discussion of Options Pricing Theory, see Product Leadership (endnote 3), and also: Faulkner, T.“Applying ‘options thinking’ to R&D valuation”, Research-Technology Management, (May-June): 50-57, 1996.23. Source: Portfolio Management in endnote 6.24. For a complete illustration of these various pie charts and bubble diagrams, see Portfolio Management, endnote6; also the two articles in endnote 1.25. Kodak’s portfolio management approach is described in: Patton, E. “The strategic investment process: drivingcorporate vision through portfolio creation,” Proceedings: Product Portfolio Management: Balancing Resourceswith Opportunity, The Management Roundtable, Boston, 1999.26. Source: portfolio study cited in endnote 2.27. Source: portfolio study cited in endnote 2.New Problems, New Solutions Making Portfolio Management More Effective© Copyright 2000 Product Development Institute25About the AuthorsDr. Robert G. Cooper is a world expert in the field of new productmanagement. He has been labelled “the quintessential scholar” in the fieldof new products in the Journal of Product Innovation Management and is aCrawford Fellow of the Product Development & Management Association.TMBob is the father and developer of the Stage-Gate process, now widelyused by leading firms around the world to drive new products to market. Hehas helped numerous leading corporations design and implement hisStage-Gate new products process. He is also the developer of theNewProd system for screening and diagnosing new product projects, alsoused by a number of companies.Dr. Cooper is a thought-leader in the field of product innovation management. He has published morethan 80 articles in leading journals on new product management. He is twice the winner of the prestigiousMaurice Holland Award from the IRI (Industrial Research Institute, Washington); five times winner of theUK’s award for the best article in the publication R&D Management; and 1999 winner of the HustadAward for Best Paper of the Year in the PDMA’s Journal of Product Innovation Management. He is alsothe 1999 winner of the Lee Rivers Award from the Commercial Development & Marketing Association(U.S.) for his contribution to member companies via his Stage-Gate process. Bob has also written sixbooks on new product management, including the popular, “Winning at New Products: Accelerating theProcess from Idea to Launch”, with over 100,000 copies sold.Dr. Cooper is President and co-founder of The Product Development Institute, Professor of Marketing atthe School of Business, McMaster University in Hamilton, Ontario Canada, and also ISBM DistinguishedResearch Fellow at Penn State University’s Smeal College of Business Administration. Bob was formerlyan Associate Dean of McGill University’s Faculty of Management.Dr. Cooper can be reached at cooper@prod-.Dr. Scott J. Edgett is an internationally recognized expert in the field ofnew product development and portfolio management. He is CEO and co-founder of the Product Development Institute and a Professor of Marketingat the Michael G. DeGroote School of Business, McMaster University,Ontario, Canada. Scott is a past member of the Board of Directors for theProduct Development Management Association and former Vice Presidentof Publications.Scott is a noted speaker and consultant having conducted executiveseminars and consulting projects in Canada, United States, Europe,Middle East and Japan. Some of his recent clients include Amway, ABB, Abitibi-Consolidated, Alcan,American Express, Barclays Bank, Clorox, Delta Airlines, Dianippon Ink & Chemical, Diageo, Dofasco,Domtar, DowElanco, Gennum, Grace Davision, Hallmark, Hollister, Hydro-Quebec, ICI, ITT, JohnHancock, Kelloggs, Kennametal, Life Technologies, The Mutual Group, Nova Chemicals, NSP, OwensCorning, PECO Energy, Pennzoil-Quaker Oil, Pepsico, Roche, Rohm & Haas, The Royal Bank ofCanada, R.W. Johnson Pharmaceutical, Sun Life Assurance, Toray, U.S. Filter, Warner Lambert, W.R.Grace and Xerox.He has published more than 50 articles and papers, including the "Best Practices" series. He has also co-ndauthored four books. His latest are entitled Portfolio Management for New Products 2 Edition andProduct Development for the Service Sector.Scott holds a Bachelor of Business Administration in Accounting, an MBA in Marketing/ Finance and aPh.D. in Marketing (New Product Development).Scott can be contacted at 905-648-0095, or edgett@prod-WINNING AT NEW PRODUCTSDR. ROBERT G. COOPERGetting high-quality new products tomarket on time is one of the mostcritical aspects of succeeding in busi-ness today. It is also the most difficultto achieve. With Winning at NewProducts, you will be better preparedto create and execute a winninggame plan for launching innovativeand market-driven new products.Successfully implemented by industryleaders such as 3M, Guinness, Exxon,Procter & Gamble, and Corning, thesystematic game plan presented leadsyou step-by-step along the road to success, from generatingproduct ideas to launching thefinished product.Dr. Cooper is known as the father of the Stage-Gate™system and his strategies have been put into practiceinternationally. This book is an invaluable resource to guideany manager through the essential steps of new productdevelopment. The latest edition of Winning at New Productsincludes the latest research findings and Stage-Gate™processes implemented by successful companies around theworld.Four major themes distinguish the 3rd edition from previouseditions:• astute project selection and portfolio management• the impact of e-business on product development• the need for speed• the front end of the process which Dr. Cooper terms the“Discovery Stage”.You will learn how to:• develop a Stage-Gate™ process step-by-step• get great new product ideas from your customers• screen and prioritize new product projects• incorporate customer input for design and developmentof products• conduct proper concept analyses and test markets• develop a market launch plan to generate new product sales• develop and implement a new product game plan• accelerate the process to speed your new products tomarket....and much more.$28.00 US / $42.50 CANPORTFOLIO MANAGEMENT FORNEW PRODUCTSDRS. ROBERT G. COOPER, SCOTT J. EDGETT,ELKO J. KLEINSCHMIDTA vital question in the new productbattleground is: How should thecorporation most effectively invest itsR&D resources? That’s what portfoliomanagement is all about resourceallocation to achieve corporate newproduct objectives. Executives whowin in the long run optimize theirR&D investments by defining theright new product strategy for thefirm, selecting winning new productprojects and achieving the idealbalance of projects. PortfolioManagement for New Products helpsyou understand how winning companies manage their R&Dportfolios. The lessons presented help steer your company toachieve a higher return from your R&D investment.The book provides in-depth information on topics such as:• picking the right approach for your organization• how to maximize the value of the portfolio• the need to develop a balanced portfolio• methods for leveraging new product portfolio to strategy• recommendations for effective portfolio management• how to design and manage your own new productportfolio.Portfolio Management forces you to take a look at "the bigpicture" and question whether you are meeting your newproduct goals. It presents a rigorous and practical approachto managing a company’s product portfolio. PortfolioManagement for New Products is an essential resource forany company whose profitability, and very existence, relieson the products it chooses to develop and the speed withwhich it brings those products to market.$42.50 US / $65.95 CANMember Company of the Product Development InstitutePRODUCT LEADERSHIP: CREATINGAND LAUNCHING SUPERIOR NEWPRODUCTSDR. ROBERT G. COOPERProduct innovation is a high-riskwar with the battles being foughtboth behind a company's doorsand in the marketplace. But withall the effort companies exert tobecome product leaders, over athird of their new products still failat launch, and many more neverachieve a profitable return.So what is it that product leaderslike 3M, Merck, and Procter &Gamble know that allows them tocontinually lead the way withexceptional new products?In Product Leadership, Dr. Cooper reveals the winner'ssecrets, and offers managers an invaluable resource to:• help implement and oversee systematic high-quality newproduct processes• develop new product strategies• manage product portfolios• determine which products to kill and which to back withresources• foster ingenuity to outperform the competition.Showcasing examples from the winners, Cooper demon-strates that it takes a commitment from all managers totriumph over the competition and become a leader in thenew products war.$22.00 US / $32.95 CANPRODUCT DEVELOPMENT FOR THESERVICE SECTOR: LESSONS FROMMARKET LEADERSDRS. ROBERT G. COOPERAND SCOTT J. EDGETTWhile manufacturers have longrecognized the need for effectiveproduct development as a competi-tive weapon, service industries -such as banking, insurance,financial services, communications,utilities and retailing - often lackthe rigorous, disciplined approachnecessary to pick the right projectsand see them succeed in themarket. The result? Nearly fortypercent of new service offerings fail.In Product Development for the Service Sector, acomprehensive approach to product development tailoredspecifically for the dynamics of service industries is present-ed. The authors leverage extensive research and consultingexperience as well as, the experiences of companies such asSprint, PECO, Marriott, VISA and the Royal Bank of Canada.Nine critical steps for achieving project success are identifiedalong with a step-by-step approach to developing aStage-Gate™ new product development process foryour organization.$35.00 US / $54.00 CANI WOULD LIKE TO ORDER:_____ WINNING AT NEW PRODUCTS_____ PORTFOLIO MANAGEMENT FOR NEW PRODUCTS_____ PRODUCT LEADERSHIP_____ PRODUCT DEVELOPMENT FOR THE SERVICE SECTORPLEASE SHIP VIA:NAME: _____________________________________________________________________________________POSITION: __________________________________________________________________________________COMPANY: _________________________________________________________________________________ADDRESS: __________________________________________________________________________________CITY: ________________________________________ STATE/PROVINCE: _____________________________ZIP/POSTAL CODE: ____________________________COUNTRY: _____________________________________t COURIERt MAILTELEPHONE: ________________________________________________________________________________I WOULD LIKE TO PAY BY:t VISA t AMEX t M/CEMAIL: _____________________________________________________________________________________CARD NO: ___________________________________________________NAME ON CARD: _____________________________________________EXPIRY DATE: ________________________________________________ORDER ONLINE AT WWW.STAGE-GATE.COM OR BY FAX (905) 304-8799。