Portfolio Management and Making the Right NPD and R&D Investments
1. Expected Commercial Value for New-Product Project Valuation When High Uncertainty Exists
The most popular project valuation metric, the NPV, is wrong for capturing the true economic value for many new-product projects. By contrast, the Expected Commercial Value (ECV) provides a simple way to determine a project’s financial value where uncertainties and risks are high, as is the case for bolder innovations and Agile projects. New research provides a way to estimate the key likelihoods – commercial and technical success probabilities – needed in the ECV method. How this ECV method works in a stagewise new-product process model, and how to determine likelihoods of commercial and technical success are outlined with examples.
2. Dynamic Portfolio Management for New Product Development - Robert G. Cooper and Anita F. Sommer
Summary:Effective portfolio management is vital to maximizing the value of the business’ new product development (NPD) portfolio. But NP project evaluation and making R&D investment decisions is one of the weakest facets of NPD. One issue is that once a project is underway, much of the ongoing evaluation is backward looking and process focused: whether the project is on time and on budget, and reviewing checklists of deliverables. A second issue is that the project’s business case is rarely updated and reviewed in real time as the project progresses.
A dynamic portfolio management approach is one solution. The use of the Productivity Index (PI), which gauges the forward-value of an NPD project in real time, is key: the PI captures the project’s gain in value for every additional dollar spent. But financial metrics, such as the PI, often suffer from a lack of data integrity. Building in multiple iterations complete with demos to customers creates updated and more reliable data that greatly improve estimates of project financial value and the PI. Additionally, information with artificial intelligence (AI) and machine learning to undertake market analysis also enhances data integrity.
Since the value of a project depends on many factors, the use of a multi-dimensional Value-Based Scorecard is a useful tool -- a scorecard developed using proven, research-based criteria, and which captures more than just economic value. Properly used, the Value Based Scorecard greatly enhances the decision-making process at gates and at real-time “up-gates.” Examples are presented to illustrate key points.
Open Access article: The publisher, Taylor and Francis, has kindly made this an “Open Access’ article – free of charge to download:
https://www.tandfonline.com/doi/full/10.1080/08956308.2023.2183004
3. Value-Based Strategy-Reward-Win Portfolio Management for New Products
Traditional project valuation metrics, such as NPV, capture value to the shareholder. But today, with environmental, social, and governance goals so prominent, reducing the carbon footprint must be a factor in NP project selection. So should maximizing the customer’s experience. To meet the changing needs of companies, and based on its successful applications in some larger firms, the value-based scorecard (VBS) is introduced. The VBS is a multi-dimensional model based on three main value factors, S-R-W—strategic and mission, reward, and likelihood of winning—and ten items that make up these three value factors. Key charts to help decision makers better visualize their rating assessments are provided.
4. Unlocking “Pipeline Gridlock:” Effective Portfolio Management is the Key
Too many projects in the development pipeline is a common but serious complaint in new-product development departments. Pipeline gridlock leads to under-resourced development projects, which end up taking too long to get to market, and then often under-perform. Solutions are offered—Gates with Teeth, Red Flags, and the Productivity Index—to achieve a more balanced development pipeline with fewer projects but better projects.
5. New-Product Portfolio Management with Agile: Challenges and Solutions for Manufacturers Using Agile Development Methods
When Agile Development and the traditional way of measuring, evaluating, and managing projects clash, companies must reassess how their new-product portfolios are managed, how go/kill and prioritization decisions are made, and how project performance is measured. This article explores the new solutions and emerging challenges at the boundary between Agile project management and portfolio management, and suggests tools and approaches to deal with these new challenges.
6. Determining the Value of Ambiguous Agile Projects With Multiple Iterations Using Expected Commercial Value
Agile Development provides benefits to manufacturers, but also creates new challenges. One is how to place an economic value on Agile projects, which are ambiguous, uncertain, and fluid. The Expected Commercial Value (ECV) is outlined as a tool to gauge the economic value of highly ambiguous Agile projects with multiple iterations. The mathematical derivation of the ECV equations is described in detail.
7. We’ve Come a Long Way Baby and A Collection of Cooper’s Articles
This two-part article series begins with the introductory article “We’ve Come a Long Way Baby”, and is followed by “Collecting Cooper’s Articles”, which contains the other 17 articles Cooper has published in the Journal of Product Innovation Management.
When research into product innovation management began in earnest in the late 1970s, nobody knew much of anything about how to succeed in product innovation. Thus, the theme of much of the research in the years that followed was to probe the “drivers of success”. Some research looked at why new products win or fail; other studies lowered the microscope on businesses and their innovation performance, and sought reasons for their results, both positive or negative; and some focused on particular strategies and methodologies and their impact on performance. Read the complete file on this research and conclusions about what makes a winner in new-product development.
8. Your NPD Portfolio May Be Dangerous to Your Business’s Health
Cooper reveals data that points to dangerous trends in companies’ development portfolios – too many projects, an over-abundance of low-value projects, and too few significant development initiatives. He shows the reasons for this troubling trend, and then poses solutions, both strategic and tactical, to reverse the trend in your company.
9. Ten Ways to Make Better Portfolio and Project Selection Decisions
Cooper and co-author Edgett outline the ten best ways to make Go/Kill and project prioritization decisions in new-product development, and also ways to obtain the right mix and balance of projects in your development pipeline. A good “how to” article on a difficult topic.
10. Your NPD Portfolio May Be Dangerous to Your Business’s Health
Cooper reveals data that points to dangerous trends in companies’ development portfolios – too many projects, an over-abundance of low-value projects, and too few significant development initiatives. He shows the reasons for this troubling trend, and then poses solutions, both strategic and tactical, to reverse the trend in your company.
11. Effective Gates – Using Gates With Teeth
Product innovation productivity suffers from too many projects, with too few high-value ones, in most firms’ development pipelines. “Gates with teeth” help to prune the development portfolio of weak projects, and deal with a gridlocked pipeline. And a robust innovation strategy, coupled with strategic buckets, refocuses resources on high-value development initiatives.
12. Where Are All the Breakthrough New Products? Using Portfolio Management to Boost Innovation
This recent article in a special issue of Research-Technology Management outlines the best methods for making portfolio management decisions and R&D investment decisions in the case of riskier and bolder projects. The fact is that most project selection methods tend to favor small, incremental development projects, hence an overabundance of “renovation projects” in most firms’ development portfolios. See how to stop this trend to trivial new products, and rethink your investment decisions and methods. A good basis for anyone trying to redress the imbalance of projects – too many small, low value initiates in your development pipeline.