NPD Portfolio Management and the Tilting Effect

Here’s a simple yet crucial insight about NPD Portfolio Management. And it points to a big problem every company must address.

Portfolio Management that oversees only projects in development reinforces a common misstep.

For many companies, portfolio management begins and ends with projects underway within their development practices. What happens before and after isn’t important. Their concern is getting the most from projects under development. If you need evidence, look at a few conference presentations or search the web to check it out for yourself. It’s a truth that’s hiding in plain sight.

Many experienced product developers assume Portfolio Management is only about development projects being carried out in an Agile, a waterfall, or a hybrid approach. But don’t let this fool you. Good NPD & R&D demands more. Shifting resources across projects under development is essential, but it’s not enough.

Figure 1: This bubble chart shows a fictional four-product NPD portfolio with each project moving through a staged development process (left to right) and toward launch (from top to bottom.)

The bar chart in Figure 2 below displays the risk-adjusted peak annual revenue for the projects. The bar height represents the total revenue from the projects each year.

Figure 2: The bar chart shows the peak annual revenue expect from all products launched during the year listed below each bar.

You can see only one project will launch in the year 2019. Its risk-adjusted peak annual revenue is about $5 million. In 2020, three of the four products will have launched, and their total risk-adjusted peak annual revenue is about $25 million. All four will have launched in 2021 with about $32 million expected annual revenue.

But the sloped line above the bars suggests the NPD financial goal calls for more revenue than the portfolio will deliver. There’s a gap between the launch value and the objective.

In response to the gap, management may shift resources to the two near-term projects. This resource shift moves the bars to the left, but it also widens the gap in future years. The move would trade-off long-term results to meet short-term goals.

The difficulty for the imaginary company is the nature of projects in its portfolio. They don’t create enough revenue. The projects don’t target opportunities that are large enough. Management can shift resources across development projects as much as they like, but they’ll never meet the goal.

The Fix

The solution calls for leadership to break the pattern. It’s shifting resources toward getting better projects out of the Front-end. The answer is not to shuffle resources across projects already underway.  The company can’t fill the gap with the current projects. They must find other, bigger and better projects.

There’s a fundamental lesson for portfolio management in this imaginary case. If a management team seeks higher value and greater performance from an NPD portfolio, they must create a productive Front-end.

The challenge is that most organizations don’t have a proactive Front-end. Instead, potential projects come from the same sources as they have for many years: one-off projects from R&D, customers, marketing, the sales force, and even top management.

Front-end Misalignment

A problem arises when a Front-end keeps delivering the same project types. Companies even grow numb to this happening. You’ll notice it when projects have common characteristics. Sure, product ideas might be different. But you’ll see a similar opportunity size, a similar degree of newness, and similar competitive alternatives.

The problem is that portfolio management can’t do anything about the project likenesses. Typical portfolio management can turn development projects on and off or shift the resources from one project to another. And portfolio management doesn’t create new projects.

But a default Front-end is seldom enough to drive a good NPD portfolio. Based on the bubble chart, you need a Front-end that delivers bigger, better bubbles. And bigger, by itself, does not mean better. You’ll find when bigger projects are not anchored in what better means, a portfolio’s value can decline.

Good Portfolio Management should help developers complete good projects. But notable performance gains demand company invests more into Front-end work, specifically work that targets bigger, better projects. This investment is a bold and deliberate choice by a governance team. It’s not an off-the-side-of-your-desk activity for those already working on projects.

Here’s the kicker. Most existing Front-end approaches don’t recognize what’s needed to drive more impactful portfolio performance. They don’t guide work based on a solid definition of what “better” means. The typical front-end approach marches to a different drummer. Instead of matching a portfolio’s needs, front-end contributors seek brilliantly bold and big ideas. Isn’t that what the Front-end is supposed to do?  Funding, people count, and strategy don’t matter as much to Front-end practices as they do to portfolio management.

Front-end Freedom, Back-end Tilting

Front-end independence is empowering. But when a company deliberately shifts resources to the front-end, you’ll see those resources come from development projects. And if the independence leads to projects that don’t match the portfolio, critical challenges will result. So, what’s the common recourse to those challenges? Unfortunately, it’s to move resources to tackle the challenges when the projects try to move through development.

Can you see the problem? It starts by shifting resources to tackle the mismatch between the front-end’s output and the portfolio’s needs. But unless a company has infinite resources, moving resources to the “back-end” undercuts the front-end. The resource shift then causes future problems in development, demanding more back-end work. This quagmire is a systems dilemma known as the tilting effect. And while a leading systems thinker at MIT pointed this out years ago[i], the solution has been elusive.

The original advice to overcome the tilting effect was to break the system. It was to stop projects and move resources en-masse to the Front-end. But the approach is costly and risky; especially if a company doesn’t have a means to align its front-end activities with its development work. If the company doesn’t understand what “better” means in the bigger, better bubble quest, improving performance is a game where hope and luck are the most important contributors.

Purposeful Innovation

Thankfully, we now know a better solution. It’s to tie the front-end to the back-end by a single, pliable strategy, the mechanism that defines what is and isn’t “better.” The strategy, specifically a product line strategy, should also target purposeful innovations. It shouldn’t encourage independent and random ideas leading to disconnected products. If an idea is good enough, it should influence a change to the product line strategy. Otherwise, governance teams should move the idea away from the product line.

The solution to the systems dilemma demands as much strategic thinking as it does creativity. But it’s at the product line level, anchored in a strong multi-product mindset. It’s not the traditional approach where companies push ever-harder on finding and developing one concept at a time.

The approach doesn’t do away with bold and radical concepts. It’s just the opposite.  But the approach divides these bigger and bolder ideas into two buckets. One bucket for those specific to the product line. And the other bucket for those disconnected from markets or technologies.  The idea is to manage these buckets separately and not allow disconnected ideas to enter development alongside product line projects, and distract the product line’s focus and consume its resources .

Uniting the Approach

The work and thinking before development greatly impact the portfolio. And the work and thinking before the Front-end impact concept quality. That’s why a product line’s strategy and its roadmap are so important. It creates targets to drive productive Front-end work. It’s also the key to overcoming the tilting effect.

Figure 3: NPD Process – From strategy through in market product management

Figure 3 shows a better approach. This high-level process flow shares the better approach. It shows a flow that ties business strategy to product line strategy. The product line strategy then drives concept generation.

Innovation Targets

If you want a Front-end to create better development projects, your strategy practices must create superb innovation targets. And it’s each target’s impact on a strategy that’s most important. Conversely, keeping a Front end independent of a product line strategy will cause issues for the line. You’ll see resource tilting undercut the Front-end. It’s a symptom of firefighting, not productive product development.

The challenge is two-fold. It’s to create the product line strategy and to carry it out. And carrying out the product line strategy falls to smart roadmapping. Such roadmap practices include front-end work, development projects, and in-market management, all specific to a product line.

Product Line Strategy and Roadmap

Carrying out a product line strategy calls for smart oversight and quick work adjustments. And when done well, the approach changes portfolio management’s goal. The old approach was to seek maximum project throughput. The new approach seeks successful roadmap execution.  It’s the product line strategy success that matters most. And it’s the roadmap’s job to ensure the product line delivers maximum value.

Portfolio Management, to be effective, must include projects within the Front-end. And a Front-end must deliver a stream of superb opportunities. But to do this, you must resource your Front-end fully. Plus, it would be best to tie Front-end work to a product line strategy and its roadmap.

Portfolio Management and the Front-end must work in tandem. But for many, it’s not clear how best to marry the two. Front-end projects differ from development projects. Time frames, task certainty, investment amounts are different.

Product line roadmaps enable these disparate worlds to unite. The key is to see the “investment objects” within the Front-end and place these strategy-driven investments on the roadmap. These are targets for innovations, not fully formed ideas. And such targets represent strategy moves to drive existing product lines or create new lines without the tilting effect.

And that’s the key. It’s strategizing and roadmapping a product line that enables the front-end and portfolio management to unite. If you seek major NPD and R&D gains, you need a good product line strategy and a sharp roadmap. It works to overcome the Tilting Effect quagmire.

Learn More

Want to learn more about how to tie Portfolio Management to a productive, strategy-driven Front-end? Please contact me. The gains are significant.

Also, for those seeking even more, please consider reading my book, The Profound Impact of Product Line Strategy.

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