This document discusses portfolio management for R&D and new product commercialization. It begins by explaining why portfolio management is important for R&D, as R&D produces a revenue stream and is an investment that companies aim to maximize returns on. It then discusses portfolio management best practices, including using a top-down and bottom-up approach to define the portfolio. Examples are provided of how one company used portfolio management over 9 years on a product line, generating $100 million in cumulative savings. It concludes by discussing first steps to transitioning to a balanced, prioritized portfolio.

1. Portfolio Management Tools for R&D and New Product
Commercialization
Christopher Haller

2. Agenda
A. Why Do Portfolio Management?
B. Portfolio Management Best Practices
C. Portfolio Management Examples
D. Portfolio Management – First Steps
E. Conclusions/Recommendations
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3. A. Why Do Portfolio Management? – What is
R&D?
What does R&D and Product Commercialization produce?
- Designs & drawings
- Knowledge
- Products
 Ultimately R&D and product development produces a revenue stream or
returns for a company or organization
 R&D and Product Development = Investment
Hence the need for Portfolio Management

4. A. Why Do Portfolio Management? –R&D Portfolio Example
Imagine if you had $10M of R&D resources to invest and you had the following goals:
o Return of 15% (double the money in 5 years)
o Protect your initial investment (moderate risk)
o Invest to grow long term & maintain or improve marketplace position
o Foster an environment of innovation and continuous improvement
Investment Approaches:
A. Don’t invest in R&D – put money in external investment vehicles
B. Invest based on what feels right & immediate customer wants
C. Research, analyze and balanced portfolio approach
D. Purchase R&D from external sources via mergers/acquisitions and contracts
CORRECT ANSWER FOR A COMPANY WHO WANTS TO GROW IT R&D CAPABILITY:
C – but what constitutes a balanced portfolio (answer in a few slides)

5. A. Why Do Portfolio Management?
Successful Companies = Innovative high quality products that delight customers
R&D Output = Knowledge transferred into products and returns on investment
 Much of today’s product R&D activity is still characterized by 11:
 High rates of failure
 Missed deadlines
 Excessive rework
 Cost overruns
 A key failure mode in the innovation process is not addressing the critical
“people-driven” innovation disciplines such as:
 Strategic planning
 Product portfolio management
 Project and resource management
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6. A. Why Do Portfolio Management?
All too often, engineering and product development suffers from a number of
fallacies that rob the organization of the optimum conditions for innovative and
high output17:
• High utilization of resources will improve performance
• Processing work in large batches improves the economics of the development
process
• Our development plan is great; we just need to stick to it
• The sooner the project is started, the sooner it will be finished
Effective portfolio management addresses these fallacies
 Effective resource management
 Improving flow of project (smaller is better – load leveling R&D)
 Ability and methodology for updating portfolio based on market and technology
 Start a project when it makes sense rather than overload the system
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7. A. Why Do Portfolio Management? – Pitfalls of Multitasking
Impacts of Large Number of Projects & High Utilization of Resources
 Numerous studies have been done assessing the impact of multitasking and
overloading resources on organizational performance & innovative thinking
 People are pretty good at shifting between two contexts for small tasks. To a
certain extent, we can parallel process two independent tasks.
 For larger tasks/projects, we should expect some switching cost.
 As the number of tasks is increased, additional tasks incur an additional 10%
penalty, in reality the costs are frequently higher.
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8. A. Why Do Portfolio Management? - Other Benefits
 The other benefits of Portfolio Management:
• In addition to improving project loading to maximize people efficiency and
promote innovative thinking, portfolio management provides the following
to the business:
 A logical mix of product development projects to fit the company strategy
 Some rational for determining product lifecycle and EOL decisions
 A roadmap for product development and implementation (communication and leadership tool!)
 A tool for matching resource loading and projects to meet optimum ROI and quality of work life
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9. A. Why Do Portfolio Management? – Technology/Customer Profiles
 Strategic & Resource Planning: Balancing project loading and strategic vision
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Mature business – high project load, maintaining products
Low risk, short term, low growth
Start-up business – fewer resources, new products/technology
Very high risk, long term, high growth potential
Established Business looking for growth through R&D –
smaller focused projects, fostering innovation and turning
knowledge into products and revenue
Balanced Portfolio:
Moderate risk, short/long term, moderate to high growth

10. A. Why Do Portfolio Management? – Technology/Customer Profiles
 Optimum Project Mix to Balance Growth & Risk
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11. A. Why Portfolio Management – moving to development flow
 Lean Product Development Principals:
 Set Based Flexible Design
 Integration Focused Leadership
 Dynamic Cross Functional Teams
 Knowledge Sharing/ Continuous Learning Process
 Flow/Cadence Driven Development
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Essentially equivalent to
flow -> fewer projects at
a time but load leveled
R&D (work is not
back end loaded) – also
projects have reduced
cycle time & DIP
Traditional Product Development – back end loaded
Lean Product Development – Load Level Flow

12. B. Portfolio Management Best Practices – Portfolio
Definition Process
 Top down and bottom up approach
 Top down – strategy and portfolio mix set by senior leadership (10000 foot level)
 Bottom up – individual technology and product experts and teams establish list of technologies and
products
 Senior management puts together strategy, risk tolerance and performance goals
 Technology/product experts put together data (ROM) around sales, development effort,
risks, timing and strategic impact (note: representation from a diverse team ranging form
R&D to manufacturing to marketing etc.)
 From data and research define ratings of technology projects and product development
programs – based on a range of factors:
 ROI (may be adjusted around prediction risk – volume/margin)
 Strategy Impact
 Technology and customer risk
 Development/industrialization time (time to money)
 Resource Usage – Budget and People
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13. C. Portfolio Management Examples – Background
 Used an aggressive portfolio management approach on a 300 M$/year revenue product
line from 2005 to 2014
 Portfolio consisted of new products, technologies and cost reduction/concurrent
engineering activities
 Assembled a cross functional group comprising of senior management,
product/marketing, R&D, product development, manufacturing, supply chain,
purchasing, customer reps and systems to annually brainstorm and define sets of
technical options and programs.
 Held quarterly sponsor meetings to review the roadmap performance and also review
any proposed changes between annual reviews
 Through a series of programs and smaller projects introduced over 15 product changes
over a nine year period that saved the company 3 M$ on a yearly basis but
(cumulative savings of around 100 M$ -> payback of 4X versus development cost)
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14. C. Portfolio Management Examples - Development History & Portfolio Evolution
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15. C. Portfolio Management Examples - Development History: Quantitative Analysis
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Budget, Savings (Return) & Number of Projects
R&D ROI % (One Year Payback) per Year
NOTE: Volume & commodity adjusted ROI%
NOTE: Green line represents fit without outliers, red dash is all data
NOTE: Severe volume & commodity
price drops impacting returns

16. C. Portfolio Management Examples – Initial Roadmap Generation
 Technical Portfolio Analysis
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Option
Cost
Savings Timing Risk (Int)
Risk (Ext
Customer Resources
Proposed
Introduction Cum Risk
Value w t -
risk,res,time
(Months)
Technology 1 174 2 1 1 1 Program 7 1 174
Technology 2 45 4 1 2 1 Program 7 1.333333 34
Technology 3 50 2 1 1 1 Program 8 1 50
Technology 4 207 2 1 1 1 Program 8 1 207
Technology 5 100 4 1 1 1 Program 8 1 100
Technology 6 150 6 2 1 2 Program 8 1.666667 90
Technology 7 853 0 1 1 1 Program 8 1 853
Technology 8 138 3 1 1 1 Program 9 1 138
Technology 9 891 6 1 1 2 Program 9 1.333333 669
Technology 10 0 6 2 1 2 Program 9 1.666667 0
Technology 11 3119 9 2 2 3 Program 9 2.333333 1003
Technology 12 1680 6 1 1 2 Program 9 1.333333 1260
Technology 13 150 6 2 1 2 Program 10 1.666667 90
Technology 14 891 6 1 2 1 Program 10 1.333333 669
Technology 15 2070 9 2 2 3 Program 10 2.333333 666
Technology 16 690 9 2 1 2 Program 10 1.666667 311
Technology 17 150 6 2 2 2 Development 2 75
Technology 18 -250 6 2 1 2 Development 1.666667 -150
Technology 19 600 9 2 1 2 Development 1.666667 270
Technology 20 323 6 2 2 2 Planned 2 162
Technology 21 400 6 2 2 1 Planned 1.666667 240
Technology 22 1191 9 3 2 2 Planned 2.333333 383
Technology 23 690 12 2 1 3 Deferred 2 259
Technology 24 2070 12 2 3 3 Deferred 2.666667 582
Technology 25 1035 12 2 2 3 Deferred 2.333333 333
Risk: Resources:
1 - Low
2 - Medium 1 - Low Resource requirements
3 - High 2 - Medium Resource requirements
3 - High requirements - greater than 50% resources for a significant amount of time
Risk (Int) - includes technical and manufacturing risks along with uncertainty around cost reduction estimates
Risk (Ext Customer) - includes likelihood that external customers have issues with the change or reject performance of modified product

17. C. Portfolio Management Examples – Initial Roadmap Generation
 Film Technical Roadmap Definition – Roadmap 2005/6
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18. C. Portfolio Management Examples – Roadmap Evolution
 Technical Roadmap Definition – Roadmap 2014 Ratings
Opportunity
Technical
Risk
Market
Risk

19. Portfolio Management Examples – Roadmap Evolution
 Technical Roadmap Definition – Roadmap 2014
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20. C. Portfolio Management Examples – cost savings over time
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21. D. Portfolio Management – First Steps
 Current State: A large project list with forced ranking for all
product lines – not load or strategically balanced
 Future State: A prioritized product/technology portfolio based on
marketplace and development data/analysis that is resourced
leveled with the following benefits:
 A process for project selection that is both top down and bottom
up focused
 Realistic schedules due to resource leveling and careful analysis
 Minimized multitasking but efficient use of resources
 Product/technology mix poised for short term payback and long
term growth
 Long term view with alignment to corporate goals (believable and
stretch targets)
 Scientific method for project selection
 Resource headroom for innovative thinking and research
 Responsive to customer needs and proactive R&D approach

22. D. Portfolio Management – First Steps
Sample Roll-out for a Portfolio Management Process

23. D. Portfolio Management – Portfolio Management Workflow

24. E. Conclusions
1. Adopting portfolio management tools helps focus development efforts and prevent
over extension of development resources.
2. Defining product/technology roadmaps gives a tangible and long term direction for
R&D and product commercialization. These tools provide a level of discipline to the
project management process and also a defined method for adding or killing
projects.
3. These tools in combination with lean product development tools can make significant
improvements to time to market, ROI, customer satisfaction, innovation and market
share growth.
4. The portfolio management workflow provides a method to both prioritize and
organize projects for both short term return and long term growth
5. Regular portfolio management at both the senior management and development
team level provides a tool for regular communication of projects and priorities to the
product development community
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25. E. Recommendations
1. Rollout the roadmap definition process with both education and data collection meetings
2. Update the portfolio with the data and information and begin efforts to prioritize and organize the
projects
3. Review with both senior management and individual groups for modifications and approval
4. After approval, adjust projects and resources according to the portfolio
5. Setup a routine process to re-evaluate the portfolio on an annual or semi-annual basis
6. Setup a change review process to add additional projects or revisit existing projects
7. Modify and improve the portfolio management process to meet business needs
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26. Discussion / Question and Answer
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27. References:
 Resources list:
1. A More Rational Approach to New-Product Development, E. Bonabeau, N. Bodick & N. Armstrong (Havard Business Review
March 2008)
2. Developing Products in the Half the Time, Preston Smith and Donald Reinertsen (Van Nostrand Reinhold 1991)
3. Going Lean, Stephen A. Ruffa (AMACOM 2008)
4. Managing the Design Factory, Donald Reinertsen (Free Press 1997)
5. Product Development in the Lean Enterprise, Michael N. Kennedy (Oakley Press 2003)
6. Product-Development Practices that Work: How Internet Companies Build Software, Alan MacCormack (MIT Sloan
Management Review, Winter 2001)
7. Shooting the Rapids: Managing Product Development in Turbulent Environments, Marco Iansiti (California Management
Review, Fall 1995)
8. The Lean Machine, Dantar P. Oosterwal (AMACOM 2010)
9. The Machine That Changed the World, James Womack, Daniel Jones and Daniel Roos (Free Press 2007)
10. Toyota’s Principles of Set-Based Concurrent Engineering, Durward K. Sobek II, Allen C. Ward and Jeffrey K. Liker (MIT Sloan
Management Review, Jan 1999)
11. Project and Portfolio Management for the Innovative Enterprise, James Ramsay (CA Technologies 2011)
12. Multitasking Gets You There Later, Roger Brown (InfoQ 2010)
13. Executive Control of Cognitive Processes in Task Switching, Joshua S. Rubinstein, David E. Meyer and Jeffrey E. Evans,
Journal of Experimental Psychology - Human Perception and Performance, Vol 27. No.4
14. Quality Software Management: Systems Thinking, Gerald M. Weinberg (Dorset House 1991)
15. Workload and Performance of Employees, Shah Hussain, S.S., Jaffari, A.R. et al, INTERDISCIPLINARY JOURNAL OF
CONTEMPORARY RESEARCH IN BUSINESS. 2011
16. Multitasking Damages Your Brain And Career, New Studies Suggest, Travis Bradberry (Forbes 2014)
17. Six Myths of Product Development, Stefan Thomke and Donald Reinersten (Havard Business Review 2012)
18. The Principles of Product Development Flow: Second Generation Lean Product Development, Donald Reinersten (Celeritas
Publishing 2009)
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