The Misdirected Guidance of “Portfolio Balance”

by Paul O’Connor

Here is a simple message for all NPD and R&D managers and likewise for all Chief Innovation Officers.  This message is especially important for PMO’s with responsibility for analyzing a path forward for portfolios of new product development projects.

The entire notion of “Portfolio Balance” is misguided.

The problem is that no one knows what a balance should be.  Each of us simply makes it up as we go along. That even includes those of us who teach the topic.  Supposedly, a numerical measure of balance should enable guidance on product strategy. But to work out the conflicts of product strategy under the guise of portfolio balance is an ineffective approach that wastes time and causes conflict among key stakeholders.  It is more like an attempt to put out fires than an intelligent approach for executing product strategy.  Those in the trenches of portfolio management understand this intuitively.  The challenge is what to do in its place.

Beautiful Portfolios
Recently, a notable academic and consultant in the NPD field stated that his new research suggests that over 80% of organizations have “unbalanced” portfolios, with too many small projects underway.  This statement builds upon earlier communications about how balance is problematic and how “imbalance” results in lots of small, less impactful projects consuming resources. The implied message is that organizations would be better off by moving their portfolio toward being “balanced.”  But how can a PMO know what “balance” in their portfolio should look like? Presumably it is a ratio of one type versus another.  Is it only the ratio of small versus big projects that needs balancing?  Is it also risky versus less risky projects? Are there other dimensions which need “balancing” such as product type, time, and resources? Surely managing multiple balances is a balancing act itself.  What if someone inserts the word “strategic” in front of balance?  Should “Strategic Balance” make it more significant or more meaningful?  And if “portfolio balance” is absolutely critical, who in the organization should articulate what balance means? Are these people able to communicate a common view of the measures that define a ‘healthy’ balance… and then stick with it?  From my perspective, less than 10% of companies conducting NPD portfolio management have established criteria on balance.  Of those that do, all have done it via declaration, yet treat the balance criterion merely as ‘nice-to-have’, not as mandatory.

The issue with “portfolio balance” is that it is similar to judging beauty.  One person may like what they see, while another may not.  With an NPD portfolio there will always many viewpoints.  These perspectives, specifically those of each stakeholder, tend to fall back to the judgment that ‘if my projects are fully resourced, the portfolio balance is beautiful.’ Nonetheless, there is still a presumed element of strategic guidance to the notion of portfolio balance.  No one would ever say “I do not want a balanced portfolio. I want mine unbalanced.” Surely balance has to be good.  But is it?

Our challenge is that declaring the attractiveness of balance within a portfolio is the same as declaring that we only wish to have beautiful portfolios.  Unfortunately, no matter how you slice and dice your data, and no matter how you might mathematically optimize multiple ratios in a balance, declaring a cross-organizational and cross-product line agreement toward specific balance targets is like declaring a definition for what is and isn’t beautiful.

The Real Challenge
In portfolio management the real problem is not balance.  Rather, the challenge is in how best to execute smart product line strategies.  Therefore, we need to rid the entire notion of ‘portfolio balance’ from NPD portfolio management practices.  In its place, PMOs should strive to answer these direct questions:  Regardless of balance, will this portfolio of NPD projects carry out the roadmaps for our product lines? If not, why not? And, are there non-critical-to-roadmap projects underway? If so, why?  In other words, the PMO should focus on executing the strategy of the product lines, not on seeking an elusive “portfolio balance.”  Of course, this also sets up the need to have product line roadmaps, each of which should reveal the strategy of the product line inclusive of the timing of current products in development.  This is necessary because product line strategies and their execution need to be the primary objectives of NPD portfolio management.  The bottom line is that balancing a portfolio is misguided if product line managers fall short on executing their strategies.

PMOs should strive to answer the direct question:

Does this portfolio of NPD projects carry out the roadmaps for our product lines?

In earlier blogs and newsletters, I have shown that optimizing an NPD portfolio is fruitless without a proactive product line strategizing and roadmapping process.  Here, I am suggesting that the interplay between product line roadmaps and portfolio management should cause us to drop the notion of portfolio balance, replacing it instead with a focus on executing product line strategies.  In new product development, the process and output of product line strategizing and roadmapping need to be inextricably linked with portfolio management.  Suffice it to say that the most significant impact that organizations can have on their NPD portfolios actually happens before NPD projects even start.

The challenge for product development managers and the PMO is not to enable senior management to articulate the “correct balance” of a portfolio, or in lieu of this, to battle out prioritization of projects while they are in development.  Rather, the PMO’s challenge is to view and analyze product line strategy plans and their conflicts ahead of the portfolio.  It is to gather detailed strategies and roadmaps for all product lines that will ultimately consume resources in the portfolio of projects under development.  It is to work with product line managers to roll up and rationalize these roadmaps into a single roadmap of all product lines in the business unit.  More to the point, It is to enable the review and analysis of the full roadmap to spot and solve the critical skill-capacity issues before new product development projects even begin.  Waiting until resource issues and product strategy conflicts play out in the portfolio of products in development is ill-advised.  The better approach is to adjust product strategies, their inherent new product schedules and the aggregate skill-based resource capacity before products enter development, not sitting back and waiting for the conflicts of “balance” to appear with the projects already underway.

Important Help
Hopefully sharing this insight about the tight relationship between Product Line Roadmapping and Portfolio Management has set up a wish to learn more.  If so, please consider some materials to read and from which to gain deeper insights.  Also, please take advantage of The Adept Group’s findings and experiences on how your organization can reap significant gains from smart implementation of product line strategizing and roadmapping together with NPD portfolio management.   As a starting point, consider this list of reading materials, videos and workshops:

  1. Whitepaper:   Strategizing, Roadmapping and Executing the Product  http://adept-plm.com/download-request-strategizing-roadmapping-executing-product-line/
  2. Upcoming Workshop on Product Line Strategizing and Roadmapping   (Ft. Lauderdale, FL  Jan 21-22)   http://adept-plm.com/event/strategizing-roadmapping-product-line-workshop-2/
  3. RoadMapping RampUpTM SaaS software for improving implementation of Product Line Strategizing and Roadmapping http://adept-plm.com/roadmapping-rampup/
  4. Additional Articles:
    New Product Development Product Line Roadmapping   http://adept-plm.com/new-product-development-product-line-roadmapping/

  5. LinkedIn: Please connect with me and The Adept Group
    www.linkedin.com/in/pauloconnor1
    https://www.linkedin.com/company/the-adept-group

As always, please feel free to contact me directly to discuss any and all aspects of improving organizational productivity toward new product development.

Contact me at:     paul.oconnor    at   adept-plm.com
+01-904-551-0673

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[i] Marketing email distributed on behalf of and signed by RG Cooper.
[ii] See Article at adept-plm.com       http://adept-plm.com/from-portfolio-management-to-product-line-roadmapping/

Comments

  1. Dr Tony Lawson says:

    Excellent article

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