Hello and welcome.
This is Martha Malone with the Industrial Research Institute and I am happy to welcome
you to our Brown Bag today on strategic portfolio management.
I am also joined here by Michelle Taussig at IRI and will our introduce presenters here
really briefly, quickly.
The session today is brought to you by IRI industry partner Planisware.
We're happy to have them here with us and I'd like to introduce you first to Michel Delifer.
He is the sales director at Planisware, which is a Gartner-recognized provider of product
portfolio management software and services.
He's an internationally experienced executive
with a passion for and proven ability to identify value-added solutions for organizations focused
on innovation.
He's helped numerous organizations get innovation to market and Michel has also had the immense
privilege of working under Dr. Bob Cooper's leadership for five years, and partnering
with him in various capacities for the past 17 years.
Again, welcome, everyone and I will turn it over to Michel.
Thank you very much, Martha.
I am delighted to be sponsoring this event with the Industrial Research Institute today.
My name is Michel Delifer and as Martha said, I'm a sales director with Planisware.
Planisware is the name of the company, as well as the product.
Planisware is a project portfolio management software focusing on supporting the new product
development business processes from-end-to-end, and we've been in business with top leaders
in innovation for over 20 years.
Planisware has over 300 corporate clients, serviced from 10 locations across North America.
"In recent years, we've been highlighting thought leaders -- such as Dr. Cooper -- at
our user conferences and when our customers have asked for more substantial business learning
formats, we decided to enhance our software services by offering and sponsoring education
dedicated to process improvement in NPD, new product development.
We have launched the Planisware Center for Excellence to champion, on one hand, established
proven best practices in project portfolio, such as today's topic, as well as emerging
and promising practices for NPD organizations.
As Martha said, I was fortunate to work with Dr. Cooper for many, many years and we've
been engaged delivering workshops and guiding clients ever since.
Now, my tremendous privilege in introducing Bob.
Bob Cooper is a world expert in the field of management of group product development
and product innovation.
Bob has written seven books on the topic and has published more than 120 articles.
He is the creator of the globally employed Stage-Gate process, used to drive new products
to market.
He's a fellow of the Product Development and Management Association, the PDMA.
He is an ISBM distinguished research fellow at Penn State University, as well.
He's a noted consultant and advisor to Fortune 500 firms.
He also gives public and in-house seminars globally.
Bob divides his home life between Toronto, Ontario, and Sarasota, Florida.
Many of Bob's publications have appeared in leading magazines and journals.
Bob -- by the way, this is a beautiful picture of you -- Bob will be running our masterclass
in Chicago on June 13 and 14.
That will focus on innovation strategy and portfolio management, again, June 13 and 14
in Chicago.
I will also be the host of that.
Bob, thank you for agreeing to present this session with us.
Over to you, please.
Thank you so much, Michel and Martha, and everyone else who's tuned in this morning,
or this afternoon, and let's get underway.
The topic is portfolio management and innovation strategy.
Now, we have a book out on this topic, and let me tell you, it's a complex topic.
The book, which is probably about 300 pages, doesn't do it justice so I think we're going
to be a little pressed for time here to get into the kind of granularity that some of
you might want to get into.
I guess that's why we do the webinar, but we're also hoping that you'll have enough
interest to come to the seminar, as well, where we have two quality days to delve into
the topic in a little more depth.
Before we get into this, we've done a number of studies with the American Productivity
and Quality Center in Houston, which I guess is the largest not-for-profit benchmarking
society in the world.
They focused on product quality for many, many years, but in more recent decades, they've
started to look at things upstream from manufacturing, such as R&D and product design, etc.
In our benchmarking studies with their many, many member companies -- and they're in the
hundreds, thousands -- we find that four themes stand out as the key to success.
When we look at highly successful, innovative companies, companies that make a lot of money
and achieve their objectives, etc., four things consistently stand out.
The first one is successful businesses in product development seem to have a robust,
well-articulated, well-communicated and right-on product innovation, and technology strategy.
That's up at the top of this diamond.
The second theme is they make the right investment decisions.
Not only do they have a strategy that gives them direction, they put their money where
their mouth is and actually make the right investment decisions, which is what portfolio
management is all about.
Portfolio management is a relatively new
term in the lexicon of new product development terminology.
It first came to the fore about 1993, when some group in Boston -- I think it was Arthur
D. Little -- published the book called Third Generation R&D, where they talked about making
the right investment decisions and borrowed a term from the financial community -- namely,
portfolio management -- the same kind of term they would use to manage your pension
plan, something.
Many of the techniques that financial portfolio managers use -- with modification, it was
argued -- could be applied to product development because what we see in product development
is that every R&D project or every new product project is an investment.
Just like investments in the stock market, they can be managed.
They can be managed when to buy high, when
to sell high, when to sell low, etc.
Some of these same techniques can be applied with significant modification, so that's what
portfolio management is about.
It is not project management, by the way.
It's portfolio management, making the right go/kill decisions.
Two other things -- since I have this diagram up here -- two of the things you might want
to think about -- not the topic of today's discussion -- is execution.
That's at the bottom of the diagram.
Having an effective idea-to-launch system, or as Michel had pointed out, I came up with
the Stage-Gate process some years ago.
Most companies in the United States and, in fact, globally -- in the Western world, anyway --
are using some version or variant of Stage-Gate.
Michel's organization is sponsoring another event in California in the fall where we get
into what's new in Stage-Gate.
Michel might want to get some information to you on that later.
Finally, and a very important topic -- and one, again, not for today, but something you
should keep in mind -- this diagram wouldn't be complete without it -- and that is the
people side of the equation -- having a positive climate and culture that fosters innovation
within the corporation and the right leadership from the top.
These are the four elements that we find common to successful businesses.
As a bit of a sanity check here, you might want to judge yourself or measure yourself
on each of these.
Do we have a well-articulated, robust and right-on product and innovation, and technology strategy?
Do we have a portfolio management system that helps us make the right investment decisions?
Do we have an effective idea-to-launch system, an up-to-date, proficient, well-oiled, adaptive,
agile and accelerated process to get new products to market?
Finally, do we have the right kind of climate, culture and leadership?
These are the four keys to success.
Now, let's spend a little bit of time on the top one here that I've just highlighted
and that is the first part of our session today, a product innovation and technology strategy.
Here are some of the things we find.
New product development goals and objectives, NPD is new product development, about 38%
of companies actually have well-defined, clearly articulated smart goals and objectives.
Isn't that shocking?
You sort of wonder what happened to the other 62% of firms.
By the way, when we look at top-performing businesses -- and these darker bars are the
best for performers in the sample of, this is the APQC in Houston again, this is the
top performers.
About half of them actually have clear goals and objectives, and here we have the not so
good firms.
These are the poor performers.
A very typical objective might be one that 3M uses -- and I've disguised the numbers
a little bit here -- but, for example, a very typical objective at 3M is in this business unit,
30% of our sales by the year 2020 will come from new products we've launched in the
last five years.
In other words, and they call that NPVI, or new product vitality index.
It's the percentage of sales generated from new products.
Some people translate that into a dollar figure, but very, very clear timeframe attached, very
specific, measurable.
I go into a lot of companies and they talk about goals and objectives, and wishy-washy
words, things that are not measurable, no timeframe attached.
Take a hard look at your goals and objectives.
Do you have them?"
Another key might be -- another key we find -- is that the role of new product development
or product innovation is clearly articulated in achieving the business's goals.
For example, in one European company I was into not so long ago, the owner of the business,
and it was a family-owned, very, very large global company, in Austria, as a matter of fact.
They're in the crystal business. You probably know who I mean.
You see them in every airport and shopping mall, it seems.
Anyway, the head of the business was basically saying, "I want to see the business double
in the next five years, double in size."
He says, "I'm not sure we're going to achieve that through just opening more stores.
What clearly is, is that new product development is going to have to generate half those sales."
In other words, he was clearly articulating the role of new product development in achieving
the overall business goal.
Once again, we see the top-performing businesses do this, have a higher tendency of doing this,
the poor performers, no.
A long-term commitment.
I go into some companies and the objectives, and goals are basically a year or two out,
or you say, "What's your new product strategy?"
They show you a list of projects for this year.
I'm sorry.
That's not a strategy.
That's what you're going to do this year.
Strategy is typically three-to-five years, some companies even longer in terms of where
they're going with their new product efforts, new product programs.
Strategic arenas defined.
One of the key ... oh.
Let me just back up here.
Does anyone know what the word strategy means?
I often ask this in my seminars and I get a lot of blank stares.
It's actually not an English-derived word.
It's not a French word, either, or a German word.
It's actually a Greek word and it means "the art of the general, the art of the military
commander." A lot of what we practice in business in the world of strategy has its
roots as far back as 500 BC with the famous book called The Art of War, written in China.
One of the key principles in any military command -- other than having clearly defined
objectives -- the other key principle is the principle of mass, in other words, focus.
Concentrate your efforts and hit hard at one point rather than spreading yourself across
a long, long line and trying to attack, dissipating your effort, in other words.
You're sure to set up yourself up for failure.
Well, one of the keys to knowing where to attack is having defined strategic arenas
or -- I guess, in military jargon -- having defined battlefields.
We find that a lot of companies have these and, as you can see, these percentages are
quite high.
The trouble is when you lower the microscope and get very specific, we find a lot of them
are pretty lame.
They're tired.
They're sterile.
They're barren.
There's not much there.
It's the same, old areas we've been beating ourselves up in the last decade or two.
Take a hard look at the strategic arenas where you have defined as fair game, areas of strategic
focus for your R&D efforts and their priorities.
Then ask yourself, "Are they clearly defined and are they the right areas?
Are they robust, rich areas that are going to generate the next engines of growth for
our business?" Another element of strategy is strategic
buckets, putting your money where your mouth is, so to speak.
Strategy becomes real when you start spending money.
A lot of companies have very nice statements about where they want to attack and how they
want to attack, and where they want to win, and which markets and technologies, but they
really haven't said, "And in order to achieve that, we plan to spend two thirds of our R&D
budget in this particular market in order to seize the day."
That's what strategic buckets is all about.
I'll get into that a little bit that later.
This is a newer concept and a lot of companies that have implemented it and done very, very
well with it.
And, finally, roadmapping.
I'm surprised that not more of us have roadmaps in place.
I'm talking strategic roadmaps, not this year's releases of a whole bunch of variants of the product.
In other words, what are the major initiatives?
In order to achieve our objectives, what major initiatives do we have to launch over the
next five years?
Obviously, a roadmap is a tentative allocation of resources.
It makes certain there are place marks in place so that we have at least a vision of
what new products we're going to launch.
Now obviously, if you're doing a roadmap for five years out, you can't forecast five
years, but what most people say is, "Look, it's a rolling roadmap.
We implement the first year and we have a four-year vision thereafter, and it's updated every year."
That's sort of the notion.
Very, very useful exercise and obviously an attempt to translate strategy -- words in
a document -- into action, specific actionable projects that we're going to do this year
and next year, and the year after.
One of the things you see here is that there's a huge difference on this chart between the
very top performers -- the dark blue guys -- and the not-so-good companies, the companies
that are doing lousy at product development, that's the pastel green here.
It sort of speaks to the point that not only is strategy ... not only doesn't make sense,
but it is proven to be strongly correlated with performance.
In other words, if you do a good strategy -- if you develop and implement a good strategy --
you will be rewarded with much higher new product performance.
Now, what are the major steps?
Strategy just doesn't happen in an afternoon of sitting around, discussing at some conference
what you're going to do.
Usually most people go through some kind of a strategy process -- hopefully once a year,
at least an update once a year -- where we start with defining goals for new product
development.
I've already talked a little bit about the goals, the role of new product development
in your business strategy.
For example, a statement that we're going to double the size of our business in the
next 10 years or five years, and 50% of that's going to come from new products, and then
specific goals and objectives for new product development, like the 3M one.
30% of our sales in the year 2020 are going to come from new products that we've launched
in the previous five years.
Moving down the diagram, the next thing is many people spend a lot of time thinking about
where we're going to find all these great new products and all these dollar sales.
That's this notion of defining the battlefields -- or the strategic arenas, as we call them --
and we get into strat mapping.
I'll get into this a little bit as the session goes on here.
Once we've decided where we're going to attack, in other words which markets, products, product
lines, technologies, where we're going to focus our efforts.
Once we decided that, then it's time to move down to item number three here, how we're
going to win.
I mean it's fine to say we want to get into technology X or we want to emphasize product
category Y a little more in our R&D efforts, but having said that, what are we going to
do about it?
What's our investment strategy?
How much money are we prepared to spend here?
What's our strategic trust?
Are we going to win by being the low-cost guy, the innovator?
What's our entry strategy if it's a totally new area to us?
Are we going to go in alone?
Are we going to go in with partners?
How are we going to win?
Something that a lot of companies don't get into enough, they define areas of focus, but
then they don't follow through and say how we're going to win the day.
Then we get down to the next level of strategy.
This is getting more into portfolio management.
Some people call it strategic portfolio management.
That is translating our strategy into spending decisions, or using a military analogy, into
deployment of forces, putting boots on the ground so to speak.
There's a couple of different things.
One is resource commitment in general, how much we're going to spend overall, R&D budgets,
for example by business unit.
Another key one is strategic buckets -- where that money or resources, person, power, where
it's going to go -- and finally, roadmapping.
Which projects do we envision or envisage doing over the next five or seven years?
This is translating strategy into reality, and now we're moving down to tactical -- moving
away from the topic of strategy, but moving down into tactical decisions -- and this
really gets into the guts of portfolio management.
Project selection, or making go/kill decisions on an ongoing basis.
Project prioritization done either at gate meetings or portfolio reviews.
And, finally commitment of resources to projects, to R&D projects, and that's people, as well
as dollars.
Here, I just show a sample of some of the tools, etc., that one often sees when one
gets into the issue of project selection, project prioritization and resource allocation.
This is the grand scheme for how all these different bits and pieces fit together.
I find a lot of people get very confused.
They're working on one piece of this puzzle and often don't see the big picture.
But I think this diagram that I've just gone through does give a much better idea of where
all the different elements and pieces fit together.
Basically, the major steps, one of the things we deal with, having dealt with the topic
of setting objectives and goals -- and we do spend quite a bit of that in the seminar,
don't have the time right now -- but another big, big area, and fascinating area, is where
do we want to play the game, in which arenas in order to win the day?
We spent quite a bit of time on picking the right areas of strategic focus.
As one person said to me, one executive said to me, "Bob, there's two ways to win at new
products.
One way is to do projects right."
He says, "And that's what your Stage-Gate process is all about, you know?
It's tactical.
It's about execution.
It's about what you do in phase one, phase two, phase three as you move through the model.
But the other way to win at new products -- and it's far more important -- is do the right projects.
Be in the right areas."
As he pointed, he said, "Even a blind person can get rich in a gold mine by swinging a pickax.
If you're in the wrong mine, no matter how hard you dig and how hard you work, you ain't
going to get rich.
But if you're in the right mine, in the right area and doing the right projects, even adequate,
merely adequate execution will make you money."
We spend a lot of time making sure that you're playing on the right playing field, in the
right strategic arena.
We find a lot of businesses are incredibly lacking here.
They're in areas that are barren, sterile and simply have no headroom for serious product
development.
We start out with a pretty good industry assessment and a company analysis to identify
a list of possible strategic arenas.
The art of good management here is having lots of good options.
Far too often, companies limit themselves to one or two possible fields, and then wonder
why they end up with fields that aren't so interesting.
Then, we get into an exercise of how you identify these and, next, how you pick them, the selection
of the hot areas.
Then, once you've picked areas of strategic focus, moving into generating ideas within
these selected arenas, such as defining unmet needs, defining customer problems, profit
voids, emerging areas.
Finally, that leads you to new products and new solutions that you get underway.
The major development initiatives, the product roadmap, the technology roadmap, etc., the
projects you plan to do in order to realize your strategy.
There's a very logical sequence here, but I want to spend a little bit of time over
on the pink sections of this diagram, which is really the guts of strategy, deciding where
you're going to play the game.
The industry and market analysis -- and we take you to this in agonizing depth, developing
maps of the value chain, upstream and downstream; undertaking industry structure analysis; identifying
your customer's industry drivers and potential shifts in these; undertaking trend analysis;
market mapping; trying to identify pockets in the marketplace where there's money to
be made; looking at disruptive technologies as a potential source for some "a-has;"
and, finally, peripheral visioning.
All of these are some of the tools that people use and we use, in order to identify areas
of interest, areas of potential where you might want to focus your R&D effort.
The goal, of course, is to identify a good number, not just one or two -- a good number
of these that you can then begin to assess and lower the microscope on -- and then finally
pick the one or two hot ones that you really want to focus on.
A core competency assessment is part of this analysis.
A core competency is obviously something you can do better than your competitors that's
critical to helping you create new products and services, achieving competitive advantage,
and it has three characteristics.
A lot of people get this wrong.
A lot of people think a core competency is simply a strength.
Not so.
A core competency is a core competency that has these three things.
Number one, provides potential access to a wide variety of markets.
In other words, it's not so narrow as to be next to useless.
Number two, it should make a significant contribution to perceived customer benefits.
In other words, you should be able to leverage your core competency to build a "wow"
factor into your products or services, and it should be difficult for the next person
to copy it.
It should be something that's fairly unique to you."
The goal then is basically to identify strategic arenas.
The same diagram again, I'll just take you through it.
A strategic arena, well, think of these as battlefields or playing fields, where we want
to play the game.
What are they?
Well, hard to define sometimes, but most people -- when you stand back and take a look at
the strategy -- in most cases it deals with markets, market segments or market sectors.
Strategic arenas can also be product types, product lines, product categories or product
classes.
They can also be technologies, technology A, technology B or any combination of these.
For example, the product market matrix.
This is a product market matrix -- for example, from a telephone company where they talk about
voice data internet products -- and down the side are their various market segments.
Each of these cells represents a strategic arena, for example, developing data products
for small business home office.
These stars simply represent areas of strategic focus where we plan to attack, where we plan
to deploy our resources.
This is a very classic product market matrix and there's a number of other tools like this
that people use to visualize the possible playing fields where they could play the game.
The next goal, the next step here is actually to develop a strat map, or strategic map.
Basically, there's two fundamental questions we always look at whenever we're looking at
a new battlefield, a new possible arena where you might want to play the game.
The first one is an external metric and that's the vertical access here.
It basically says, "Is this a rich and interesting area?" Like, what do we win if we win?
Is this an oasis or is this a sterile desert where there's nothing but sand and we're not
going to find very much gold out here?That's a very, very important dimension.
The other one is our business strength.
You've often heard the old adage always attack from strengths, never attack from weaknesses.
Well, it's true.
We find again and again, and again when companies attack from strengths they have about a two-to-three
times chance of winning, versus companies that are attacking from non-strength areas.
One of the questions we're always asking is, is this strategic arena, is this battlefield
an area where we can deploy our strengths to advantage?
Out of this comes a four-dimensional matrix.
I'll just sort of flip up what it is here.
In the upper right-hand corner, these are the best bet arenas, these two circles here
designate strategic arenas.
These are high-opportunity arenas where we can leverage our business strength and, also,
they happen to be very, very attractive.
Over here in the polar opposite are the "no bets," areas that don't build on our strengths
and also are not very attractive.
Then, there's two others sort of high on one, low on the other, etc.
I think you get the idea.
Basically what we do is we take the -- and it's typically about 10 possible arenas in the
business -- and we basically do an assessment, go out do some due diligence, get some data,
come back, sit around, have some discussion on these and then try to position them on
this strat map in order to figure out which are the one or ones that we designate as the
top key areas of focus for our business.
This is sort of the first step in strategy development, deciding where we want to play
the game, or which battlefields or playing fields do we want to focus our efforts on.
At this point I'm just going to take a bit of a pause to see if there are some questions
coming in before I move into the guts of drilling down a little bit more into these topics.
Who should be developing this innovation strategy? Is it product managers or the head of R&D?
And, how do we get started?
Well, that's a very good question, Michel.
I think the first hint is the name.
Strategy is the art of the general.
It usually means, while all the work isn't done by the senior people, they've got to
be very clearly involved and engaged in this process.
The product managers, the R&D managers, they're going to provide a lot of the data and do
a lot of the heavy lifting, but I find the best exercise to go through is where the leadership
team of the business unit takes charge here and goes through a process, starting with
defining our objectives and goals, and then identifying possible strategic arenas where
we could play the game, then picking the areas where we want to play the game, etc.
Typically, it's a series of off-site meetings
-- out of the office -- in which the head of the business unit and his or her direct
reports -- like head of R&D, head of marketing, head of manufacturing, finance, and so on
-- get together, along with next level down people like product managers, R&D managers, etc.
Typically it can be a fairly sizable group.
I mean, not a cast of thousands, but it's not just one or two people clustered away
in a room together.
This is a process that is multifaceted, cross-functional, led by the top -- a lot of the work done,
however, by the middle level, ordinary people in the organization, so a lot of input, obviously,
from product managers and a lot of input from R&D managers, as well as other folks in the
company, finance and production as well, and sales.
It really is a business effort, not just an R&D or marketing effort.
Very much so.
Good question.
Yeah, we have a few questions, too, here, Bob."
Sure.
The first one was really kind of a focus, is, "Does this information relate to service
industries or just product development?" Speak to that a little bit.
Both. I'm sorry.
I should've clarified that.
When I use the word product, I mean anything that you take to a marketplace for acquisition
or consumption for which you are paid money.
Okay?
In other words, that can be service, it can be software, it can be a combination of service,
physical product and software, anything.
What I exclude is freebies, like tech service and support.
Those sort of things I don't normally consider as a product, but everything else you take
to a marketplace and charge money for, that's a product.
Certainly this applies very, very ...
I've used this methodology in banks, financial institutions and so on, and it works equally
as well.
Yeah.
Good question.
Another question and I see a number of them coming across, so this is good.
You're sparking some interest.
Good.
One question on the strategic arena, talk to us a little bit of how this is different
from defining the market.
Oh, a strategic arena might be a market or a market segment, or a market sector, but
it could also be a technology.
For example, I've heard companies say that, like a company was in the beer industry, "One
of our areas of strategic focus is the focus on aseptic packaging or high-gravity brewing."
I mean, that's a technology.
What they were basically saying is they want to spend a lot of R&D and leverage that -- this
technology -- to develop products or a technology platform.
It could be a technology.
It could also be a product category.
Another company I was working with was in the pump business and they talked about high-pressure,
high density pumps and this, that, and the other thing.
Those are products, not markets.
It's more than just market segments and markets.
I'm a marketing guy, so I obviously relate very much to that, but I'm fully aware that
it might be a technology that you want to focus on or a technology and market combination.
That's why I showed the product market matrix.
It's more than just markets, but good question.
Yeah, and another sort of related question is picking the best bets makes sense.
Are there scenarios where you pick high-risk bets as your arena?
Ah, yes, and maybe hopping back to that diagram, the high-risk bets are up here.
Obviously, if you have a little more money and resources than the next person, you can
always afford to take a few chances.
If you don't have -- if you're not flush with resources -- you want to hedge your
bets a little bit, maybe stay a little bit in the more conservative and best bet arenas,
but yes.
I have seen some companies say, "X percent of our R&D budget is going to go into this
arena, here.
It's a high-risk area.
We know it's a high-risk one, but we have a couple of other ones that are going to balance
that off."
But, usually that's for the more innovative company and the company that's a little more
flush with resources, is where I see that.
For most of us, we don't have that luxury, unfortunately.
Interesting thought, though, what percentage is the optimal amount to put into that?
It's a bit like in the stock market, Martha, saying, "I'm prepared to take 10% of my portfolio
and put it in a really, really high risk stuff hoping to heck that I hit gold."
But most of us might not do that.
How do you increase risk and learn from failure, which you spoke a little, too, about?
The second part of that question is how do we learn from failure?
Usually, the failures that we have are obviously in the specific projects that we execute,
specific new products that we launch, and don't do so well in the marketplace.
I assume the person who asked that question is talking about those kind of failures.
That's usually where failures manifest.
You know, we launched eight products last year and six of them were duds.
One of the things that we're going to be talking about -- not so much on this seminar, but
more on the one in the fall that Delifer for is also hosting -- and that is basically
building in learning techniques into the execution process of product development.
Martha, as we were talking earlier this morning about an article that has just been released
by me in your wonderful 60th anniversary edition of Research Technology Management, Martha,
that's something that you folks at IRI should be very, very proud of.
What a wonderful edition it is.
I have an article in that edition.
It's called "Agile, adaptive, and faster accelerated product development."
There's quite a bit on learning and how we learn from failures.
In fact, the notion is get something out
there real fast, fail early, fail often, fail cheap and get the benefits of the learning.
That's part of the Agile methodology that folks in physical products, hardware products
and services like us, are learning from the software field, where they get something out
there, a couple of screens that don't even work -- work very well, that is -- and in
order to get customer feedback, and learn from the things they messed up and move the project
forward.
We spend quite a bit of time, but that's more at the execution-level.
That's not so much the strategy stuff we're talking about here, nor the project selection
stuff, but I certainly hope people do take a look at that article in your journal.
The article is called "Idea-to-launch gating systems: Better, faster and more agile."
There you go, and it's all about the Agile methodology, which basically preaches, "Get
something out there fast so you can fail, learn, move on."
Now, moving into portfolio management, a little bit away from strategy.
As you can see, there's a lot more to strategy than we have time for in 25 minutes.
That's why we do take the better part -- well, the better part of the day, day one of the
two-day seminar -- on it, but let's move into portfolio management, which is about
project selection and coming up with the right mix and balance of projects.
It's a major problem area.
This is data from the APPC studies, APQC, sorry, studies that we've done over the years.
These, again, are the top-performing businesses -- which is the dark blue bar -- and the
average business, and then finally the light blue is the terrible businesses.
Some of the statistics you see here, the first thing is that you see is that just about everybody
has too many development projects for the resources available.
We're overloading our pipelines and in some companies -- especially the poor performers,
where they have a terrible performance here -- it's almost gridlocked.
It's like a traffic on the highway just not moving at all, the pipeline is so stuffed
full projects, often the result of not knowing when to say no.
Another big problem people have is poor balance, far too many minor projects in the portfolio.
You hear comments like, "Our portfolio is just swamped by a lot of little tweaks, modifications,
improvements and very minor salesforce requests, and it's killing us.
It's consuming all the resources.
We can't get any big projects out."
And that's the next issue.
"We have few or no high-value-to-the-business projects in our portfolio," another significant issue.
Next, "We have no project prioritization."
All projects are top priority, which of course means none of them are top priority.
Finally, "We don't even have a portfolio management process in place that helps us make some of
these decisions and overcome some of these issues."
Lots and lots of key issues here, too many projects, the wrong kinds of projects, no
high-value projects, lousy prioritization, and no system in place to right the situation.
That's what the seminar now moves into.
For about a day-and-a-quarter, we get into these guts.
One of the things you'll notice is that while every company seems to suffer to a greater
or lesser extent from these ailments, the top performers -- the dark blue bars -- are
suffering a lot less.
In other words, they're doing somewhat better on these.
Nobody's perfect, but I guess the objective is to get better than the average business
here, the medium blue bars.
One of the things I mentioned earlier today in this session was strategic buckets.
Strategic buckets is an approach to figuring out where you want to spend your money.
One of the things we encourage companies to do is create pie charts like this.
This is -- I guess -- where Delifer's software, Planisware's software, also helps.
This is a very simple one, where we're spending our money.
Are we looking ... we spending it on product projects?
Are we spending it in the green area of bold innovations or are we just spending our money
on a lot of minor projects, extensions, modifications, etc.?
Well, that's nice to know where the money was spent last year and the year before, but
the issue is where should it be spent next year?
That's what strategic is all about.
The first thing that we get into is management has got to make some strategic choices about
where it wants to spend its money going forward.
In other words, maybe we spent 5% of our money or 5% of our resources in this green area
last year, and we all agree, 5% just wasn't enough to move the needle, so we need to spend
at least 10% going forward.
Management makes some strategic choices based on where they spent money in the past, based
on how well they've done with some of these initiatives and based on where the opportunities
are going forward.
They make some choices.
It can be by project type.
This simple little red, green, blue diagram shows project types, but we also encourage
them to do it by strategic arenas, so that would be another pie chart, or maybe by technologies.
Maybe you're into three technologies.
Where do you want to spend your money?
Or maybe by geography, America's projects, Euro projects, Asia-Pacific projects etc.
There's a variety of different ways you can split the resources up.
By the way, when I use resources, I mean people or person days, as well as money.
Then the next step is, let's say you've decided to spend 30% of your money ...
last year you were spending 20% on red.
You say, "That wasn't enough.
We should've been spending 30%."
That's the decision.
Then, the next exercise is we take all our red projects, all our projects that are underway
or just getting underway, coming to, typically, a gate two meeting in the Stage-Gate process.
Take all of these red projects and rank them one-to-end.
Let's say we've got 30 of them, maybe 20 underway, another 10 coming to be underway, and we rank
them one to 30.
We use some criteria, such as a gate score, or the net present value, or the productivity index.
There's a number of different criteria you can use to rank your projects from best to worst.
You rank all the red projects against all the other red projects until you run out of
red money � until you run out of red resources � and you draw a line and everything above
that line you do, and everything below that line, you put on hold or kill.
This is a very, very deliberate approach to try to force your portfolio, try to force
your portfolio, so that your resource allocation, after a couple of years, your resource allocation
will really mirror your strategic priorities.
You might start out by saying, "We want to spend 30% -- or a third of our resources
-- on red and right now it's only 20%."
After a couple of years, if you do this religiously and vigorously, you will find the needle slowly
moves, and after a couple of years steady-state, you will actually end up at 30% on red.
The other nice thing about this is the red projects are not being compared to blue, and
the green projects are not being compared to blue because when you put them all into
one bucket and shake the bucket, guess which ones always rise to the top?
The blue ones, the low hanging fruit, the ones that are certain, fast, cheap.
That's why we end up with a portfolio that is dominated by blue projects.
So, one of the nice things about this method is not only does it force the needle to cause
you to end up with a portfolio that mirrors your strategic priorities -- you end up spending
your money where you want to spend your money -- but number two, you don't end up comparing
apples and oranges.
You're just comparing red projects against other red projects, green projects against
other green ones, etc., which is much fairer to these projects, otherwise they always seem
to end up losing.
It's a very, very powerful technique.
It's not unlike what is employed in the stock market when people are making tough decisions
about when you go to see an investment counselor, what proportion do you put in bonds versus
stocks versus real estate.
It's a fairly traditional argument and there are methods for figuring out what the appropriate
split is.
Well, we get into this -- how you figure this out -- and, basically, it starts with
a business strategy because from strategy, of course, all else flows.
Some of the key inputs we get into discussing in order to help you make this strategic buckets
decision starts with your strategy, goals and objectives.
Obviously, that's a key input.
Another key input is where the money's been going in the past, because you're never starting
with a clean, blank piece of paper here.
Another key issue is what do best-in-class businesses do?
We've got some pretty good data that we can share with you on where the top-performing
businesses, what their breakdowns of spending looks like.
I read with interest a Harvard Business Review article not so long ago that basically said
that companies basically spend 10% of their money on innovations, another 20, 30% on new
products and then the rest, I guess about 60, 70%, on sustaining innovation in improvements
and renovations.
They thought this might be a reasonable split.
I'm not so sure that is a good split, and it certainly isn't for everybody.
We get into some of these issues of what are the optimal splits.
Oh, here is another interesting thing.
We take a look at productivity, or yields.
Think of a farmer putting his seed on three different fields that he measures or she measures
the yield, and that influences where they spend their money or where they put their
seed the next year.
It's the same kind of allocation problem we have.
We look at a number of different factors to determine where one should be placing one's bets.
A strategic roadmap is another attempt to figure out where we want to spend our efforts,
where we want to spend our money.
A roadmap ... strategic buckets is at a point in time.
A roadmap is over time, okay?
Here we have, one's a photograph, the other is a video.
Here we have the video and basically looking at how we put together a roadmap of major
initiatives, typically about five years out.
Now, I know, as I said before, you can't predict five years in advance, but you usually
can predict about a year.
We update this roadmap every year and we implement the first five years, the first year only.
There are some very, very good ways of developing roadmaps, again, referring back or deferring
to Michel Delifer's question, "Who does this?"
It's a cross-functional group.
In the old days, we used to call it product line planning and it was typically done by
the product manager.
No longer.
This is a cross-functional group of technical and marketing, and sales and production people
gathered together in a room to map out the key initiatives.
Some of the inputs we look at are the strategy and goals, once again, the existing products.
This is where the product manager brings his or her expertise, understanding that certain
products are getting tired and need revitalization, others need to be dumped altogether, others
need replacement.
Market trend analysis is another key input, along with the voice of customer.
And, finally, competitive analysis and technology trends, and assessments.
There's basically six key inputs that go into this roadmapping exercise and we do spend
some time on the seminar getting into the details of how to do this and how to make
it work, and how to organize in your business unit for roadmapping.
Here we've had two strategic portfolio approaches.
One is strategic buckets, snapshot.
The other is roadmapping video, and both are very, very powerful techniques for translating
strategy into reality.
Now, let's move into the next section.
The next section of this seminar is getting down into the tactical, making individual
project selection decisions.
One of the first things I would say is that if you have a gating process -- and most
of you have some kind of a Stage-Gate process in place, at least that's been my experience --
make sure that's working.
I go into too many companies, they say, "Yeah, we got a Stage-Gate process.
It's been around for 20 years."
Then you take a hard look at it and you realize it ain't working.
People are just going through the motions.
If the gates are broken, your process is not working.
One of the things we say is get back to basics, folks.
Make sure that those gates are actually making go-and-kill decisions on projects, because
at least if you have some gates with teeth here you'll be getting rid of the lousy projects.
Everything starts out looking good.
That's why the funnel's so broad here, and over time the objective is to narrow down
the field of development initiatives so that you're focused on the best bets.
The other comment I'd make here, Martha, is that a lot of people are using gating processes
that date back to the 1990s.
You know, I hate to say it, they're hopelessly out of date.
The world has moved on and that article that I was referring to in your wonderful magazine,
Research Technology Management, it is dealing basically with much more agile, adaptive, and
effective systems that people, big companies like Lego and Honeywell and others, have really
reinvented their whole new product process in the last few years.
This is just happened in the last few years,
by the way, and that's what Planisware's conference in San Francisco is going to be all about,
making it adaptive and flexible and agile and accelerated in order to really cut down
time-to-market, and also to improve productivity of development teams.
But my point here, my first point is, make sure your gating process is working because
at minimum what it will do is get rid of the bad projects if you really have gates with
teeth in there.
Portfolio management -- and, of course, I sort of showed a diagram like this before,
but this is a bit of a simplification -- is sort of a three-level hierarchy.
Up at the top, business strategy and product innovation strategy.
Then we spent some time on strategic buckets and roadmaps.
Now we're talking about the tactical decisions.
The tactical decisions are typically handled by two kinds of processes or meetings, if
you will.
I hate to emphasize meetings and processes, but let's face it, that's the reality."
One is your Stage-Gate system that focuses on individual projects where gatekeepers can
prioritize the management, has in-depth evaluations of projects, project teams come in the room,
present their project data, quality data, the deliverables to the gate are available.
The decision is by senior management.
They make go/kill decisions.
Not sure why my cursor's having troubles here.
They make go/kill decisions right at the gate meeting and they allocate resources.
They allocate resources and that is very key.
A gate meeting is not just a go/kill meeting.
A gate meeting is an irrevocable commitment of resources to a project leader and his or
her team.
Over here on the left side, we have another kind of process going underway.
It's called the portfolio reviews.
These are not real-time, unlike gate meetings.
They are periodic, like four times a year, the leadership team sits down and does a review
of all the significant projects in the portfolio.
Now, it's obviously a much quicker review than the gate meetings because you just don't
have the time.
A gate meeting might be an hour a project, a portfolio review might be five minutes of
projects.
Basically, the questions are do we have the right priorities, the right mix, the right
alignment and so on.
This is done by senior management.
We have two processes going on here, and to be very frank, although the meetings are
completely different, the kind of tools they use and the kind of information displays that
are available at the meetings are much the same.
A lot of these tools and methods see double duty.
There are three goals in portfolio management or project selection.
One is to maximize the value of your portfolio.
Here's a trick question folks.
What's your portfolio worth right now?
Now, if you personally invest in the stock market like I do, I can pretty well tell you
what my portfolio is worth in the stock market, but can you tell me what your portfolio is
worth in your R&D, your R&D portfolio, what it's worth?
Interesting question, especially since one objective is to maximize the value of that
for a given level of spending.
A second goal is to achieve the right mix and balance, not putting all your eggs in
one basket, between long-term and short-term, high-risk and low-risk, and across different
project types and market sectors.
Finally, to ensure that at the end of the day, no matter what you do, your portfolio
has got to mirror your strategic priorities.
It's got to mirror your strategy.
The portfolio is how you're putting your strategy into effect and also that if you implement
this portfolio, execute the portfolio, that you will in fact achieve your objectives.
Some of the tools we can use, obviously there's the traditional financial tools.
I must confess, I'm not a financial guy and there's more than enough financial people
around, I guess, these days in companies.
You're all familiar with these tools, so I'm not going to spend a lot of time on them.
Net present value, the internal rate of return, the payback period and, finally, the productivity
index, which is a tool that I think merits a lot more attention than it gets.
It was developed by some guy called Dr. Mike Menke in California.
It basically deals with maximizing your bang for buck.
You calculate your output over input index.
It's an index and you rank projects by this index until you're out of resources.
It's a very, very simple calculation once you have all the data in your spreadsheet,
but is a much more powerful technique than raw net present value or one of the other
techniques in terms of picking your best projects, productivity index.
I'll just give you a chance to think about that.
The other thing that you've got to take a look at is financial techniques when there's
a lot of unknowns.
One of the assumptions in any spreadsheet when you put a number in it, it's a known
number.
Well, that's not reality in product development.
Most of the numbers you put into a spreadsheet never come true.
They're numbers pulled out of the air.
When you have small projects, maybe it's not so important that you're wrong a lot of the
time, but when you have big, bold projects where there's a lot of money at stake -- and
I hope you have some of those projects -- then you can't avoid dealing with this risk issue.
Not every project, obviously, has 100% chance
of success and many won't achieve their sales and profit projections.
Anybody that's done that analysis of what was in the business case versus what actually
occurred realizes that what's in the business case and what actually occurs are sometimes
different by orders of magnitude.
Some projects will be stopped along the way of course.
They hit technical roadblocks.
How do you handle all these risks and uncertainties?
For small projects, it's maybe not that big a deal, but for a big project with a lot of
money involved, you can't duck this issue of risks and probabilities."
Risk-adjusted discount factors is one way, probability-adjusted net present value is
another way, but the one we spend quite a bit of time on -- and it's in one of the
articles that I have in Industrial ... in Research Technology Management -- is the expected
commercial value.
This is a very powerful technique for dealing with risks.
The last method I just want to mention a little bit here is qualitative methods for
picking projects.
Have you ever noticed lately how much new research in the field of cancer?
People are looking at DNA and figuring out what type of diseases people are going to
get, what kind of cancers they might get.
It's rather remarkable how predictive these markers on DNA have become in the last 10
years of research.
Well, one of the questions that's always been asked by product people doing research in
the product development is, "Do new product projects have markers?
Do they have a DNA?
Can you predict success and failure by looking at the profile of a project?"
And the answer is yes.
There's been a lot of research done on this.
Unfortunately, it's fairly complicated and therefore has not been well-disseminated into
the practitioner community, but it does exist.
I was involved in some of this early research and worked with several big companies, like
Procter & Gamble, DuPont, and others as we tried to figure out qualitative factors to
predict success, things such as competitive advantage, market attractiveness, leveraging
core competencies.
Out of this research and work, looking at many successes and many failures, and figuring
what the markers were, what the profile of a winner was, we were able to develop predictive
models that were far more predictive than financial models as high as 85% predictive
ability to choose a winning project based on qualitative factors before development began.
Now, a lot of that was very secret research because it was done within companies at great
expense.
That has become less and less, and more and more in the public domain.
I share quite a bit of these new models, revolutionary models in terms of helping you pick the right
project.
Some people say, "Hey, it's nothing but a systematic intuition, looking at qualitative
factors."
But it is very research-based.
We come up with scoring systems based on these factors, a point count system, and we
use scorecards right at the gate meetings.
This has proven to be an extremely powerful way of complimenting or supplementing your
traditional financial models, as well.
Finally, the risk/reward.
At the end of the day, you stand back and you look at your portfolio and say, "Does
this make sense in terms of the risks versus the rewards of our portfolio?"
These are but some of the tools.
As I said, this is a very complex, very rich, full-bodied area and we really don't do it
justice in 55 minutes here.
I do hope to see some of you at the seminar because out of all of this, hopefully, comes
an effective portfolio management system, fully integrated, that looks something like this diagram.
I'll ask a couple of questions.
There were a couple of things around, kind of, strategic buckets and their distributions.
One asked around, do we need a strategic bucket for each business unit? And the other was kind
of talking a little bit about what are kind of best-in-class for strategic bucket distribution?
Well, the strategic buckets' best-in-class, that's a little bit like when you go to a
stock market, a financial advisor, and saying, "How should I invest my money, stocks, bonds,
and real estate?"
And there's no one, easy answer.
I mean there's little formulas.
It depends on everybody's risk tolerance, right?
Yeah, and I think we do get into that in the seminar, but it's not the kind of thing
I can give a one-liner to.
I think if I did give you a one-liner, you'd be very suspicious of it and you'd be right
to be.
It depends on who you are and what your tolerance for risk is, and what kind of business you're in, etc.
We will get into that but I can't give you a one-liner like that Harvard Business Review
article tried to, which obviously was very suspect.
The other part of that question, Martha, was ...
Kind of, are strategic buckets done for each business unit?
Oh, yeah.
Usually.
All of this stuff, to be very frank, all of this stuff is a lot easier to operationalize
at the business unit-level, rather than at the corporate-level.
Now one can obviously aggregate everything from the business units up to the corporate
and show what the breakdown of projects is across all our businesses, and at the corporate
level that could also be some guidelines, but operationally, operationalizing this
obviously is a little simpler and makes more sense at the business unit level, yeah.
Thank you again so much, Bob and Michel.
We look forward to having you with us again.
Thanks, everybody. Have a good day.
Thanks, everybody.
I hope to see you.
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