Red7 Product Portfolio Management

1

Red7 :|: product management
STRATEGIC PRODUCT
PORTFOLIO MANAGEMENT
Tools and Process for Aligning Corporate Operational
Objectives with Product Leadership Strategies

robertGrupe, CISSP, CSSLP, PE, PMP

tags :|: product management, portfolio management, strategy, scorecard

© Copyright 2012-03 Robert Grupe. All rights reserved.

Description
• How can Product Managers
• effectively balance market leadership strategies with corporate
financial objectives?

• Do you find yourself
• firefighting and reacting to executive and sales crises instead of
building market leadership?

• This presentation will
• discuss how you can develop your product market strategy to align
with corporate operational objectives
• to drive meaningful development
• while demonstrating investment value and alignment.


Table of Contents
• Product Portfolio Introduction
• Product Portfolio Management Tools
• Corporate Strategy Mapping
• Market Communication Strategy
• Integrated PMP: Putting IT All Together


PRODUCT PORTFOLIO
INTRODUCTION


Typical Product Portfolio Planning &
Management Process


Evaluating Your PMP
• Does your portfolio reflect and support the business strategy?

• What is the quality of the portfolio – solid and high value?

• Are new products reaching market on time?

• Are your success rates and profit performance results consistent with forecasted
expectations?

• Are you allocating the appropriate levels of resources between sustaining
projects, new product development, and must-do maintenance?

• Do you have regular (quarterly) senior management reviews of all your projects
(market developments, forecast adjustments, progress, resource priorities)?

• Is the senior management team leading portfolio prioritisations?

• Do you have a portfolio funnel or tunnel?


Effects of Ineffective PMP
• Reluctance to kill projects
• Once started, many projects added to list, total lack of focus
• Too many projects – resources spread too thin, projects queued, low execution quality
• Increased time to market, high failure rates

• Weak decision points
• poor Go/No-Go decisions
• Too many low value projects, tweaks and modifications, good projects starved
• Too few stellar product winners, many ho-hum launches

• No rigorous selection criteria
• projects selected on emotions, politics
• Wrong projects are selected
• Many failures

• No strategic criteria for project selection
• Projects lack strategic direction, projects not strategically aligned
• Scatter gun effort, does not support strategy

CORELLARY
PMP performance is not just about process,
but is also a function of organization maturity and effectiveness.


Phase-Gate Development Only -
One Part of Whole NPD Process
Market &
Segments, Road
Business and Product Product Line and
Mapping
Strategy Solution Mapping
Technologies, &
Building Blocks

Phase-Gate Product
New Concept Concept Feasibility
and Solutions
Generation Assessment
Development

Lifecycle
Management and
Retire

Pipeline Throughput Management

Sustainable Product
Portfolio Management Process (PMP)
• About balancing business priorities
• risk versus return
• maintenance versus growth
• short-term versus long term
• On-going process
• under constant review and revision
• Different things to different people
• Strategist: supporting the corporate vision and mission
• Financial: most efficient allocation of financial resources to maximize shareholder value
• Engineering: choosing projects to foster the right innovation
• Marketing: faster times to market
• CEO: positive financial impact, quickly
• Axioms
• Profit is required to sustain costs in future and for innovation,
• so cut any non-performing products or those without well understood forecast (futures modeling)
• Balanced = stakeholders
• (shareholders, customers, employees, suppliers, communities/government)
• Tradeoff: short-term profits versus long term investments


Product PMP Context

Corporate Product
Strategy Strategy

Marcomms
Strategy


PRODUCT STRATEGY


Portfolio Management Tools
• Financial / Economic Models • Behavioural Approaches
• Payback period • Modified Delphi method
• Break even analysis • Q-Sort method
• ROI • Paired Comparison models
• Discounted cash flow (DCF) • Mathematical Optimisation
• Net Present Value (NPV) Procedures
• Internal Rate of Return (IRR) • Linear and mathematical programming
• Financial Ratios • Statistical decision theory
• Productivity Index
• Game theory
• Checklist Scoring Models • Probability Theory (Markov processes)
• Fit with corporate objectives
• Decision Support Systems (DSS)
• Competitive advantage
• Project Analysis and Support System
• Market attractiveness (PASS)
• Probabilistic Financial Models • Mapping Approaches / Bubble
• Monte Carlo Simulation Diagrams
• Decision Tree Analysis • Boston Consulting Group Matrix
• Options Pricing Theory (Real Options) • GE/McKinsey position vs attractiveness


Best In Class Objective #1:
Maximizing Projects Portfolio Value


Maximizing Value: Scoring Check Lists
Scored Project Screening Criteria
Rating Scale
Key Items Rating 0 4 7 10
Strategic Alignment & Importance 9.5
Product has only Modest fit, but not Strong fit with
Good fit with a
peripheral fit with with a key several key
Congruence 9 key element of
business element of the elements of
strategy
strategies strategy strategy
Minimal impact;
Moderate Significant Very strong
no noticeable
Impact 10 competitive, competitive and positive impact on
harm if product
financial impact financial impact the business
dropped
Product Competitive Advantage 6.7
Product offers Product offers
Product offers no Product offers
some benefits but positive, unique
Customer Benefits 7 unique benefits or unique features
not important to benefits and
features and benefits
customer features
Product is Product is clearly
Product is same Product is better
marginally better superior than
as competitors in than competitors
Meets Customer Needs 8 than competitors competitors in
meeting customer in meeting
in meeting meeting customer
needs customer needs
customer needs needs
Product is same
Product provides Product clearly
as competitors; Product has good
better value for has excellent
Customer Value for Money 5 poor value for value for money
money for the value for money
money for the for the customer
customer for the customer
customer

• Potential Categories
• Strategic Alignment
• Competitiveness
• Market Attractiveness
• Leverages Core Competencies
• Technical Feasibility

Maximizing Value: Scored Prioritization
Strat Prod Mkt Core Tech Proj Staff Cumm
Project Fit Adv Attr Comp Feas Reward Attract FTE FTE Status
Echo 9 9 10 10 9 9 93.3 20 20 Go #1
Beta 10 10 7 7 7 7 80.0 20 40 Go #2
Foxtrot 8 7 7 8 8 9 75.0 15 55 Go #3
Charley 7 7 9 9 8 5 74.0 12 67 Go #4
Alpha 7 7 6 6 8 6 66.7 20 87 Hold
Golf 8 6 6 8 7 5 66.7 20 107 Hold

• 70 FTE constraint
• Project Attractiveness = Average of scores * 100


Maximizing Value: NPV Prioritisation

Immediate
Resource Resource
Requirements Requirements
Project NPV Remaining (Next Quarter)
Lima 55.0 5.0 5.0
Alpha 52.0 9.5 3.2
Echo 48.5 7.0 1.3
Foxtrot 43.8 5.0 1.5
Delta 42.0 3.8 2.5
Golf 37.5 8.3 3.8
Beta 30.0 3.1 0.3
India 9.5 2.5 0.5
Charley 8.6 2.1 1.4
Juliet 6.2 0.8 0.8
Kilo 4.5 1.4 1.2


Maximizing Value: BBI Prioritisation
• $15m constrained portfolio

Immediate Cummulative
Resource Resource Immediate
Requirements Bang-for-Buck Requirements Resource
Project NPV Remaining Index (Next Quarter) Requirements
Delta 42.0 3.8 11.1 2.5 2.5
Lima 55.0 5.0 11.0 5.0 7.5
Beta 30.0 3.1 9.7 0.3 7.8
Foxtrot 43.8 5.0 8.8 1.5 9.3
Juliet 6.2 0.8 7.8 0.8 10.1
Echo 48.5 7.0 6.9 1.3 11.4
Alpha 52.0 9.5 5.5 3.2 14.6
Golf 37.5 8.3 4.5 3.8 18.4
Charley 8.6 2.1 4.1 1.4 19.8
India 9.5 2.5 3.8 0.5 20.3
Kilo 4.5 1.4 3.2 1.2 21.5
Hotel 3.0 1.0 3.0 0.7 22.2

Insight: More projects can be done simultaneously if
they do not compete for maximum resources in the
same quarter
BBI = NPV RRR

Expected Commercial Value (ECV)
EVC = [ ( PV * Pcs - C ) * Pts ] - D
• Pts - Probability of technical success (0.0-1.0)
• Pcs - Probability of commercial success (0.0-1.00
• D - Development costs remaining
• C - Commercialization costs (launch)
• PV - Net Present Value of project’s future earnings


Example: Maximizing Value
Dynamic Rank Order
Probability of
Strategic Technical
Project IRR NPV Importance Success IRR Rank NPV Rank
Alpha 20% $10.0 5 80% 2 3
Beta 15% $2.0 2 70% 4 6
Charlie 10% $5.0 3 90% 6 5
Delta 17% $12.0 2 65% 3 2
Echo 12% $20.0 4 90% 5 1
Foxtrot 22% $6.0 1 85% 1 4

Strategic Probability of
Importance Technical IRR*Pts NPV*Pts SI Ranking Prioritised
Project IRR NPV (SI) Success (Pts) IRR * Pts NPV*Pts Rank Rank Rank Mean Ranking
Alpha 20% $10.0 5 80% 16% $8.0 2 2 1 1.67 1
Beta 15% $2.0 2 70% 11% $1.4 5 6 4 5.00 6
Charlie 10% $5.0 3 90% 9% $4.5 6 5 3 4.67 5
Delta 17% $12.0 2 65% 11% $7.8 3 3 4 3.33 3
Echo 12% $20.0 4 90% 11% $18.0 4 1 2 2.33 2
Foxtrot 22% $6.0 1 85% 19% $5.1 1 4 6 3.67 4


Right Balance of Portfolio Projects
• Long term, versus short/fast
• High risk and low risk
• Markets
• Types of technologies
• Types of projects: new, improvements, cost
reduction, research


Boston Consulting Group

Growth-Share Matrix
High

Rate of
Industry
Growth

Low
Low Relative High
Product bubbles: revenue contribution
Market
X axis: Log 0.1-1.0-10.0 Share

Risk-Reward Diagram

Bubble sizes: annual resources
Y: Probability of success, X: Reward (modest to excellent),
Y: Ease-Difficulty, X Low-High Importance


Strategic Alignment


Strategic Alignment
GE/McKinsey Directional Policy
Leader Growth Improve or Quit

High

Industry
Attractiveness
Try Harder Proceed with Care Phased Withdrawal

Medium Share

Cash Generator Phased Withdrawal Withdrawal

Low

High Medium Low
Enterprise Strength

Attractiveness vs. Competitive-Position
Portfolio Classification and Strategies
Strong Medium Low

High PROTECT POSITION INVEST TO BUILD BUILD SELECTIVELY
• Invest to grow at maximum • Challenge for leadership • Specialize around limited
digestible rate • Build selectively on strengths strengths
• Concentrate effort on • Reinforce vulnerable areas • Seeks ways to overcome
maintaining strength weaknesses
• Withdraw if indications of
sustainable growth are lacking

Medium BUILD SELECTIVELY SELECTIVITY/MANAGE FOR LIMITED EXPANSION OR
• Invest heavily in most EARNINGS HARVEST
attractive segments • Protect existing programs • Look for ways to expand
• Build up ability to counter • Concentrate investments in without high risk; otherwise,
competition segments where profitability minimize investment and
• Emphasize profitability by is good and risk is relatively rationalize operations
raising productivity low

Low PROTECT AND REFOCUS MANAGE FOR EARNINGS DIVEST
• Manage for current earnings • Protect position in most • Sell at time that will maximize
• Concentrate on attractive profitable segments cash value
segments • Upgrade product line • Cut fixed costs and avoid
• Defend strengths • Minimize investments investment meanwhile


Strategic
Ansoff Matrix


Right Number of Projects


Risk-Benefit Balance

Maintenance
(fixes)

New Product
Projects

Enhancements
& Extensions


Risk-Benefit Balance
Best Average Worst
Promotional
developments
& package
New to the changes
world 10%
products
10%
New to the
business Incremental
product
products
25% improvements
& changes
33%

Major product
revisions
22%


PMP Tools Evaluation


Strengths and Weaknesses of PMP Tools
Strategic Financial Scoring Bubble
Performance Methods Methods Model Diagrams
Projects are aligned
with business
objectives
  
Portfolio contains very
high value projects  
Spending reflects the
business strategy  
Projects on done on
time no-gridlock  
Portfolio has good
balance of projects   
Portfolio has right
number of projects 
When used as a dominant portfolio method:
 - Best method for performance criteria
 - worst method for performance criteria


Satisfaction with PMP Tools
Strategic Financial Scoring Bubble
Performance Methods Methods Model Diagrams
Method truly used to
make Go/No-Go
decisions
  
Fits management
style   
Understood by
management  
User friendly easy to
use  
Realistic method
 
Perceived as efficient
 
Perceived as effective
  
Method rated as
excellent 
Business would
recommend method  
When used as a dominant portfolio method:
 - Best method for performance criteria
 - Worst method for performance criteria


PMP Tools: Take Aways
• Formal portfolio management methods work
• There is no one right portfolio management method
• Beware of over-reliance on financial methods and models
• Look more to strategic approaches as the way to manage your
portfolio
• Consider a scoring model as an effective prioritization tool
• Bubble diagrams must also be part of your portfolio models
• Corporate Strategic Alignment
• Focus is only on product development, not market execution
• Product functionality and features only focus
• Assumes that promotional strategy and investment will be someone
else’s responsibility
• Don’t forget your market strategy :: great product, but no one knows
about it or your sales aren’t promoting it
• Sales incentives
• Demand generation


CORPORATE STRATEGY
MAPPING


Balanced Scorecard Strategy Map
Strategy Map
Financial Perspective Long-Term
Shareholder
If we succeed, how will we look to Value Revenue
our shareholders? Productivity Growth

Customer Perspective
Quality Time Function Partnership
To achieve our vision, how must
we look to our customers? Price Brand

Internal Perspective
Manage Regulatory
To satisfy our customers, which Manage Operations Manage Customers Manage Innovation and Social
processes must we succeed at? Processes

Learning & Growth
Perspective
Human Information Organization
To achieve our vision, how must Capital
+ Capital
+ Capital
our organization learn and
improve?


Balanced Scorecard Example

• Organizational Scorecard
Strategy Map Balanced Scorecard Action Plan

Process: Operations Management
Objectives Measurement Target Initiative Budget
Theme: Ground Turnaround
Financial Perspective • Profitability • Market Value • 30% CAGR
If we succeed, how will we look to our shareholders? • Growth revenue • Seat Revenue • 20% CAGR
• Fewer planes • Plane lease cost • 5% CAGR

Customer Perspective • Attract & retain • # repeat customers • 70% • Implement CRM • $XXX
To achieve our vision, how must we look to our more customers • # customers • Increase system • $xxx
customers? • Flight is on time • FAA on-time arrival 12% • Quality • $xxx
• Lowest prices rating annually Management
• Customer ranking • #1 • Customer
• #1 Loyalty program

Internal Perspective • Fast ground • On-ground time • 30 minutes • Cycle-time • $xxx
To satisfy our customers, which processes must we turnaround • On-time departure • 90% optimization
succeed at?

Learning & Growth Perspective • Develop the • Strategic job • Yr. 1-70% • Ground crew • $xxx
To achieve our vision, how must our organization necessary skills readiness Yr. 3-90% training • $xxx
learn and improve? • Develop the • Info system Yr. 5-100% • Crew scheduling • $xxx
support system availability • 100% system rollout • $xxx
• Ground crew • Strategic awareness • 100% • Employee Stock
aligned with • % ground crew • 100% Ownership
strategy stockholders • Plan

Total Budget $XXXX

• Staffing Resources Scorecards
• Goals, Weighting, Thresholds, Target, Stretch, Comments

MARKETING
COMMUNICATIONS
STRATEGY
Don’t forget the 4th P


The Fourth P
• 4 P’s of Marketing
• Product  Product Strategy
• Price  Product Strategy
• Placement (distribution)  Product Strategy
• Promotion  MarComs (Marketing Communications)


MarCom Dashboard


MarComs Tools
• Advertising
• Sales Promotion
• Public Relations
• Personal Selling
• Legitimization


Advertising Digital Content Digital Channels Metrics
TV Vlogs YouTube Viewers

Radio

Print
MarCom Tools: Advertising
Podcasts iTunes, TalkShoe Listeners/downloads

Packaging - outer

Packaging - inserts

Mailings Direct email Constant Contact

Video

Magazines Webzines

Brochures Micro websites

Posters

Leaflets

Directories Search Engine Optimization Google, Bing, others
(SEO)
Search Engine Marketing
(SEM): Paid Search /Adwords
Director/reviews Yelp, Angie's List

Paid Search / AdWords

Reprints of ads

Billboards Banner ads

Augmented Reality Apps

Point of purchase displays Affilate links

Audio/visual materials

Symbols and logos


Sales Promotion Digital Content Digital Channels Metrics

MarCom Tools: Sales Promotion
Contests, games

Premiums and gifts
Online contests, games

Blogs, RSS feeds

Sampling

Fairs and trade shows

Exhibits

Demonstration

Couponing

Rebates

Low-interest financing

Entertainment

Trade-in allowance

Trading stamps

Tie-ins Mobile app tie-ins


Public Relations Digital Content Digital Channels Metrics
Press Kits Online press kits

MarCom Tools: Public Relations
Speaches

Seminars
Webcast recording

Webcast live/recording

Articles Social news services Digg, reddit

Newletters Blogs, RSS feeds

Annual reports IR website

Charitable donations Non-profit digital sponsorships

Sponsorships Webinars, Microsites

Publications

Community Relations Microblogging Twitter

Community networks Ning, MySpace, PatientsLikeMe,
LinkedIn Groups
Social networks Facebook, LinkedIn, Xing,

Community Content Newsgroups, Wikis, epinion

Affinity groups

Social Bookmarking Services Delicious, Linkroll

Product reviews

Lobbying

Identity media


Personal Selling Digital Content Digital Channels Metrics

MarCom Tools: Personal Selling
Sales presentations

Sales meetings Online meetings
Slideshare, YouTube

Telemarketing Direct Email

Incentive programs

Samples

Fairs and trade shows


Legitimization Digital Content Digital Channels Metrics

MarCom Tools: Legitimization
Corporate brochure

Product brochure
Company web site

Product web site

Building signs Online community web sites LinkedIn, Facebook


Online PR: Social Sharing Reach
• Social Sharing now produces
• estimated 10 percent of all Internet traffic and
• 31 percent of referral traffic to sites from search and social.
• Search is still about twice as big.
• Facebook makes up 56 percent of all shared content
• Up from 45 percent in August, 2010
• Email at 15 percent (down from 34 percent)
• Twitter at 8 percent (down from 12 percent).
• Email 17%, Other (bookmarking, blogs) 34%
• Twitter links are clicked on 4.9 times each, versus 4.3
times for Facebook links and 1.7 times for emailed links.


INTEGRATED PMP
PROCESS
Putting It All Together


Integrated Portfolio Management
Framework
Corporate
Strategy

Market
Research &
Strategy

Marcomms Product
Strategy Strategy


Integrated Portfolio Management
Dashboards
Corporate Strategy Map
4/8/2012 Robert Grupe

Objectives Goals Plan
Measurement Target Initiative Budget
# YR-01 YR-02 YR-03 YR-04 YR-05
Financial
Product Porfolio Plan
1 Profitability 4/8/2012 Robert Grupe
Market Value 30% CAGR
2 Revenue Growth Unit Revenue 20% CAGR
3 Objectives Strategy Products Forecasts
Positioning Budget Revenues
4 Corporate Initiative Classification Strategy SKU Initative/Project Priority YR-01 YR-02 YR-03 YR-04 YR-05 YR-01 YR-02 YR-03 YR-04 YR-05
5 TOTALS $23 $25 $26 $27 $32 $200 $181 $225 $260 $275
Processes
6 New (world/company)
7 Corp Initative A Invest to Build PN-006 Product G v1 1 $10 $4 $1 $1 $1 $10 $50 $70 $100
Organization B
Corp Initative PN-007 Product H v1 5 $2 $6 $5 $1 $1 $1 $20 $40 $50
Enhancement
Corp Initiative A Protect Position PN-002 Poduct B v3 2 $5 $1 $1 $2 $1 $100 $110 $115 $120 $115
Corp Initiative D Manage Earning PN-004 Product D v2 4 $1 $5 $1 $1 $2
Maintenance
Corp Initiative D Cost reduction 10% PN-003 Product C v5 3 $2 $1 $5 $1 $1
Corp Initiative C Protect/Refocus PN-005 Product F v2 4 $3 $1 $3 $1 $1
Hold/Retire $100 $60 $40 $30 $10
Corp Initative D Divest PN-001 Product A v6 $1 $1

Undefined/TBD $6 $10 $19 $25


Integrated Product Development
Portfolio Management Process


Initiation: Organizational Context
• What is the driving influence of your organization’s executive
team?
• Determines if you should start with Corporate Score Card, Market
Analysis, or Marcomms strategy
• Then your Product Management leadership will be to balance the organize
• Risks and Impediments
• Who will you be threatening with this new process?
• The visionary: who needs to be balanced and reigned in?
• The stock price value maximizer: who doesn’t get future risk for long term
growth ?
• Technical founder: who is use to calling all shots?
• Etc.
• Senior management buy-in and sponsorship of PMP initiative
• Whosoever sets the strategy must be responsible for the prioritisation


Implementing PMP
1. Form a portfolio management tools & process evaluation team
• Evaluate current company approaches, review current best practices
• Stakeholder representation
• Finance
• Marketing & Sales (Product Management)
• R&D
• Customer Support
• Regions
2. Determine Product Projects Phased Exit Criteria: Go, No-Go
• Must-Meet / Should-Meet
3. Provide checklist scoring and Financial metrics for all existing projects
• (except maintenance releases)
4. Review of industry best practices
5. Selection of methods suitable for leadership style of the organisation
• Not all tools are appropriate for your organisation
6. Integrate team recommendations into product lifecycle decision point
processes
7. Continuous Process Improvement (CPI)
• Real-time monitoring against models
• Seasonal Trends, Market Changes (anticipated and not), Competitive Moves
• Reviews & Retrospectives


Portfolio and Project Reviews
Business Strategy & New
Product Strategy
(drives both decisions processes)
Portfolio Projects
Review Review
Review decision gates At key project decision gates
* Review all projects together Decisions & adjustments * Project pass Must-Meet
* Identify Strategic Criteria
imperatives * Scored on Should-Meet
* Check project priorities Criteria
* Check portfolio balance * Go/No-Go decisions
* Projects prioritized
Project status & scores
* Resources allocated

Portfolio Management Project Framework
• Evaluation of new business opportunities • Evaluation of project phase exit
and approval to become projects deliverables to ensure completeness
and required level of quality
• Project prioritization based on strategic
fit and financial return • Project resource allocation based on
project prioritisation and available
• Regular re-evaluation and prioritization resources
of existing projects against revised
market and project status information


CODA


Finis
• What we measure and how we measure determine what
will be considered relevant, and determine, thereby, not
just what we see, but what we - and others - do.
• Peter Drucker, Management: Tasks, Responsibilities, Practices

• This Presentation & Further Resources
• www.red7managementsolutions.com

• Questions, suggestions, & requests
• Robert Grupe, CISSP, CSSLP, PE, PMP

• robert.grupe@red7managementsolutions.com

• +1.636.236.8434


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