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Portfolio Value Optimization
   A Winning Approach in Uncertain Times




June 3, 2009

Jim Brown, President - Tech-Clarit...
Discussion Topics


 Introduction

              - Pete Bussey, SAP America

 Realizing Product Development Value

       ...
Manufacturers’ Challenges



                          How can I increase the speed of
                           innovat...
Business Strategies
 Relentless Focus on Costs, Long-term Growth, Customers



                                 Efficiency...
Product and Service Leadership
 Managing All Product-related Processes End-To-End

                                     Pr...
Enabling Product and Service Leadership
 SAP PLM is a key contributor to make PSL happen


 Business               Product...
PLM Customer Value Network –
  A Vibrant, Value-focused Community

                                                SAP PL...
Discussion Topics


              Introduction

                     - Pete Bussey, SAP America

              Realizing P...
Goals



       Discuss Relevant Product and Portfolio Management (PPM) Research

       Review Manufacturing Viewpoints

...
Introduction - Jim Brown




                            Hall of Fame football player

                            All-Ame...
Introduction - Jim Brown




                            Hall of Fame football player

                            All-Ame...
Introduction - Jim Brown



       Industry – General Electric Major Appliances
          Manufacturing engineering, syst...
Portfolio Shift 2009+




© Tech-Clarity, Inc. 2009
12© SAP 2009                  JB
Key Question




   Has your company experienced:
      ―Successful‖ launch of product only to find market scenario has
 ...
Key Question




   Has your company experienced:
      Late technical surprises that reduce a high impact product to a m...
Key Question




   Has your company experienced:
      Overly optimistic market data paints a picture that fails to mate...
Key Question




   Has your company experienced:
      Continuing to develop a product even though the team knows it won...
Scoring




                   If you said yes to:

                      None – congratulations, take the rest of the da...
Unpredictable Return on Innovation



   Increased executive frustration with ―black box‖ of R&D budget

      ―I underst...
Relevant Research




© Tech-Clarity, Inc. 2009
19© SAP 2009
Core Issue – Understanding Value




                            Product Portfolio Management Software is very good at:

 ...
Core Issue – Understanding Value




                            Product Portfolio Management Software is very good at:

 ...
My Disappointment in PPM Solutions




                            Top 5 answers to a simple question:
                   ...
Three Keys to Managing for Value




                            Understand where value is created and destroyed

        ...
What Factors Drive Value?



               ―We create a value map to identify where the value comes
               from, ...
Attacking Uncertainty and Risk




               ―Sensitivity diagrams, or tornado diagrams, show where the
             ...
Manage for Value



          ――We use 90-100 day milestones and set our next step as
          learning about the biggest...
Proposed Framework




                            Source: Aberdeen Group, August 2006
© Tech-Clarity, Inc. 2009
27© SAP 2...
Key Takeaways


        Understand where value is created (and destroyed) in your
        portfolio

        Attack uncert...
Discussion Topics


 Introduction

               - Pete Bussey, SAP America

 Realizing Product Development Value

      ...
Why do we need to concentrate on value?




                       SmartOrg/Stanford survey*: 65% of
                     ...
Two types of portfolios — you need to
  manage both.

       Economic Portfolio (strategic)      Resource Portfolio (tacti...
Assessing the value of a new product: Solar
   Teapot

               A brilliant new innovation!
                 • Boils...
The Innovation Team is excited!




               But is this a good business deal?




33© SAP 2009
The Drama Begins: acknowledging uncertainty



                                        TECHNICAL
                         ...
The Drama Unfolds: dealing with uncertainty

                             Team develops Low, Median and
                  ...
Portfolio Navigator™ calculates value.



                        Technical Issues




                                   ...
How valuable is Teapot relative to other products
   in the portfolio?




                                          Teapo...
How does Teapot risk/reward compare?




                    Teapot




38© SAP 2009
Sensitivity analysis reveals impact of
   uncertainty (―Tornado Chart‖)


                                            Lots...
The tornado identifies the three most
   important factors that drive value.



                             Expected Net ...
Do we have the resources to address the three
   critical factors?



               Value Optimization      Resource Opti...
Who is available to work on Teapot Project?




42© SAP 2009
Value Optimization Results Can be Used to Allocate
Resources to the Most Important Projects

                             ...
Value Optimization Results Can be Used to Allocate
Resources to the Most Important Projects




44© SAP 2009
Resources allocated: review results one quarter
   later.


               Value Optimization      Resource Optimization

...
Uncertainty narrowed and NPV increased.


               Before: wide range of uncertainty around key variables




      ...
Value relative to other products significantly
   increased




47© SAP 2009
Less risk — higher expected value.




                              Teapot




48© SAP 2009
Management agrees to continue
   development




               “We have made great progress in addressing the critical
  ...
Best Practices



               • A portfolio is a collection of projects that enables
                 comparison on a l...
Discussion Topics


 Introduction

               - Pete Bussey, SAP America

 Realizing Product Development Value

      ...
Summary




               Portfolio management and optimization enable cost
               reduction today, and profitabl...
Next Steps


 Learn more – request a free copy of the whitepaper ―The ROI of Product Portfolio
 Management: a How to Guide...
Questions?




54© SAP 2009
Contacts


 Jim Brown, Tech-Clarity: jim.brown@tech-clarity.com

 www.tech-clarity.com

 Don Creswell, SmartOrg: dcreswell...
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Portfolio Value Optimization A Winning Approach in Uncertain Times

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  1. 1. Portfolio Value Optimization A Winning Approach in Uncertain Times June 3, 2009 Jim Brown, President - Tech-Clarity Don Creswell, Co-founder - SmartOrg Tony DeRosa, President - Platinum DB Peter Bussey, Director PLM Value Network – SAP America
  2. 2. Discussion Topics Introduction - Pete Bussey, SAP America Realizing Product Development Value - Jim Brown, Tech-Clarity Portfolio Optimization: Creating the Greatest Value for Your Company - Don Creswell, SmartOrg - Tony DeRosa, Platinum DB Wrap-up / Q&A 1© SAP 2009
  3. 3. Manufacturers’ Challenges  How can I increase the speed of innovation?  How can we improve responsiveness to consumers‘ needs and market opportunities?  How to save costs while continuously developing and delivering new and innovative products?  How to enable flawless development collaboration to avoid wasted time?  How to integrate the disconnected design, procurement, and manufacturing silos to reduce time to profit?  How to overcome last-minute changes which result in lost time to profit? 2© SAP 2009
  4. 4. Business Strategies Relentless Focus on Costs, Long-term Growth, Customers Efficiency to increase Profitability and reduce Time to Profit Innovate Focus on with Product Customer Service and Satisfaction and Process to Perception Differentiate 3© SAP 2009 PB
  5. 5. Product and Service Leadership Managing All Product-related Processes End-To-End Product and Service Leadership INNOVATE DESIGN SOURCE MAKE SELL MOVE SERVICE Continuous product and service innovation Integrated product development Product delivered as a service Embedded product compliance Product and Service Leadership ... can be achieved by combining all product and service-related processes and representations to establish a flexible, dynamic, and effective global network, which breaks down the walls between marketing, research and development, procurement, manufacturing, logistics, sales, and service in striving for profitable, market leading products. 4© SAP 2009 PB
  6. 6. Enabling Product and Service Leadership SAP PLM is a key contributor to make PSL happen Business Product and Service Leadership End to End Processes SELL SERVICE Scenarios INNOVATE DESIGN SOURCE MAKE MOVE Continuous Product Innovation Integrated Product Development SAP PLM Product Delivered as a Service SAP PLM 7.0 enabling Embedded Product Compliance Innovation Product without and Disruption Service Leadership SAP Business Suite SAP NetWeaver Composition CRM SRM SCM PLM ERP EhP EhP Enterprise Integrated SAP NetWeaver Applications Integration Services 5© SAP 2009 PB
  7. 7. PLM Customer Value Network – A Vibrant, Value-focused Community  SAP PLM CVN  Product lifecycle focus areas Community of PLM Participants  Product & Service Innovation  Idea and Concept Management  Portfolio and Project Management  Integrated Product Development  Embedded Product Compliance  250+ Active Participants  VP of Product Development, R&D, Eng.  CIOs  Directors, Managers  Business Analysts, IT Liaisons  Upcoming PLM CVN Event:  SAP PLM Customer Network Forum  Best practices and customer case studies  June 10-11, 2009  Newtown Square, PA  Contact: peter.bussey@sap.com 6© SAP 2009 © SAP 2007 / Page 6 PB
  8. 8. Discussion Topics Introduction - Pete Bussey, SAP America Realizing Product Development Value - Jim Brown, Tech-Clarity Portfolio Optimization: Creating the Greatest Value for Your Company - Don Creswell, SmartOrg - Tony DeRosa, Platinum DB Wrap-up / Q&A 7© SAP 2009 PB JB
  9. 9. Goals Discuss Relevant Product and Portfolio Management (PPM) Research Review Manufacturing Viewpoints Propose Framework for Realizing Portfolio Value Key Takeaways © Tech-Clarity, Inc. 2009 8© SAP 2009 JB
  10. 10. Introduction - Jim Brown Hall of Fame football player All-American lacrosse player Godfather of Soul Cultural Icon Jim Carrey © Tech-Clarity, Inc. 2009 9© SAP 2009 JB
  11. 11. Introduction - Jim Brown Hall of Fame football player All-American lacrosse player Godfather of Soul Cultural Icon Jim Carrey © Tech-Clarity, Inc. 2009 10© SAP 2009 JB
  12. 12. Introduction - Jim Brown Industry – General Electric Major Appliances  Manufacturing engineering, systems consulting Management Consultant – Andersen (Accenture)  Enterprise applications for manufacturers Software Industry – SCT (Infor) & Sequencia (OSI)  Product strategy, product management, marketing executive PLM Industry Analyst  Technology Evaluation Centers / PLM Evaluation Center  VP & Group Director, Aberdeen Group  Founder and president, Tech-Clarity, Inc. © Tech-Clarity, Inc. 2009 11© SAP 2009 JB
  13. 13. Portfolio Shift 2009+ © Tech-Clarity, Inc. 2009 12© SAP 2009 JB
  14. 14. Key Question Has your company experienced:  ―Successful‖ launch of product only to find market scenario has fundamentally changed since project was funded? © Tech-Clarity, Inc. 2009 JB 13© SAP 2009
  15. 15. Key Question Has your company experienced:  Late technical surprises that reduce a high impact product to a mediocre one? © Tech-Clarity, Inc. 2009 JB 14© SAP 2009
  16. 16. Key Question Has your company experienced:  Overly optimistic market data paints a picture that fails to materialize when product hits the market? © Tech-Clarity, Inc. 2009 JB 15© SAP 2009
  17. 17. Key Question Has your company experienced:  Continuing to develop a product even though the team knows it won’t be successful? © Tech-Clarity, Inc. 2009 16© SAP 2009 JB
  18. 18. Scoring If you said yes to:  None – congratulations, take the rest of the day off because things are going just fine  More than one – thanks for being honest, let‘s discuss how focusing on recognizing portfolio and new product development value can help © Tech-Clarity, Inc. 2009 17© SAP 2009 JB
  19. 19. Unpredictable Return on Innovation Increased executive frustration with ―black box‖ of R&D budget  ―I understand the investment, but what sort of return can I expect from our innovation?‖ © Tech-Clarity, Inc. 2009 JB 18© SAP 2009
  20. 20. Relevant Research © Tech-Clarity, Inc. 2009 19© SAP 2009
  21. 21. Core Issue – Understanding Value Product Portfolio Management Software is very good at:  Assessing alignment of portfolio with strategy  Analyzing balance and mix of product portfolio  Balancing product development efforts with available resources  Enabling new product development project execution © Tech-Clarity, Inc. 2009 20© SAP 2009 JB
  22. 22. Core Issue – Understanding Value Product Portfolio Management Software is very good at:  Assessing alignment of portfolio with strategy  Analyzing balance and mix of product portfolio  Balancing product development efforts with available resources  Enabling new product development project execution … but how do we determine financial value? © Tech-Clarity, Inc. 2009 21© SAP 2009 JB
  23. 23. My Disappointment in PPM Solutions Top 5 answers to a simple question: “Where do you get the NPV?” – ―It is user defined‖ – ―You can just enter it‖ – ―Most people get it from a spreadsheet‖ – ―You can put in anything you want‖ – ―That is the ‗net present value‘ for the project‖ © Tech-Clarity, Inc. 2009 22© SAP 2009 JB
  24. 24. Three Keys to Managing for Value Understand where value is created and destroyed Actively attack uncertainty and risk in order to narrow in on financial value Manage for value across the entire product development lifecycle © Tech-Clarity, Inc. 2009 23© SAP 2009 JB
  25. 25. What Factors Drive Value? ―We create a value map to identify where the value comes from, by asking what creates value and what destroys value. We get a lot of new and innovative ideas from understanding where the value lies, and never quite end up with the project ideas that we started with.‖ Executive Consultant — Strategy Commercial Aircraft Manufacturer © Tech-Clarity, Inc. 2009 24© SAP 2009 JB
  26. 26. Attacking Uncertainty and Risk ―Sensitivity diagrams, or tornado diagrams, show where the value of the project can swing very significantly–indicating where the project resources and time should be spent.‖ Technology Implementation Manager Forest Products Company © Tech-Clarity, Inc. 2009 25© SAP 2009 JB
  27. 27. Manage for Value ――We use 90-100 day milestones and set our next step as learning about the biggest risk. With this approach, we are not just plowing money into R&D—we are spending the money on understanding and overcoming the biggest risks to achieving project value.‖ Financial Analyst High Tech Manufacturer © Tech-Clarity, Inc. 2009 JB 26© SAP 2009
  28. 28. Proposed Framework Source: Aberdeen Group, August 2006 © Tech-Clarity, Inc. 2009 27© SAP 2009 JB
  29. 29. Key Takeaways Understand where value is created (and destroyed) in your portfolio Attack uncertainty and risk in order to narrow in on financial value Manage for value across the entire product development lifecycle Focus PPM on realizing financial value from new products © Tech-Clarity, Inc. 2009 28© SAP 2009 JB
  30. 30. Discussion Topics Introduction - Pete Bussey, SAP America Realizing Product Development Value - Jim Brown, Tech-Clarity Portfolio Optimization: Creating the Greatest Value for Your Company - Don Creswell, SmartOrg - Tony DeRosa, Platinum DB Wrap-up / Q&A 29© SAP 2009
  31. 31. Why do we need to concentrate on value? SmartOrg/Stanford survey*: 65% of project/portfolio execs are frustrated over — No consistent and transparent way to measure value of R&D projects — Inability to address risk and uncertainty in a disciplined manner * Executives participating in “Better, Cheaper, Faster: How Value-Based Management Delivers Vastly Improved Portfolio Results,” a Stanford University/SDG webinar. Survey conducted by David Matheson, SmartOrg. 30© SAP 2009
  32. 32. Two types of portfolios — you need to manage both. Economic Portfolio (strategic) Resource Portfolio (tactical) • Selecting valuable projects • Allocating resources • Feeding winners and killing • Meeting budget goals losers • Meeting time to market • Optimizing economic value requirements Portfolio Navigator™ RPM 31© SAP 2009
  33. 33. Assessing the value of a new product: Solar Teapot A brilliant new innovation! • Boils in seconds • Uses no electric power • Strong appeal to Green Movement 32© SAP 2009
  34. 34. The Innovation Team is excited! But is this a good business deal? 33© SAP 2009
  35. 35. The Drama Begins: acknowledging uncertainty TECHNICAL Can we do it? What are the chances we can successfully develop, produce and market the product? FINANCIAL Should we do it? Is this a profitable deal for us? Marketing: “Yes” — CFO: “No” Conflict over market size, share, price, margins, ramp-up time, profitability. This is normal, given the uncertainty around each of these factors. 34© SAP 2009
  36. 36. The Drama Unfolds: dealing with uncertainty Team develops Low, Median and High estimates of market factors, launch cost, growth rate, etc. 35© SAP 2009
  37. 37. Portfolio Navigator™ calculates value. Technical Issues Calculations Commercial Issues Cost Issues 36© SAP 2009
  38. 38. How valuable is Teapot relative to other products in the portfolio? Teapot 37© SAP 2009
  39. 39. How does Teapot risk/reward compare? Teapot 38© SAP 2009
  40. 40. Sensitivity analysis reveals impact of uncertainty (―Tornado Chart‖) Lots of uncertainty around: • Peak market share • Margin • Market size 39© SAP 2009
  41. 41. The tornado identifies the three most important factors that drive value. Expected Net Present Value Upside Downside Potential Risk Challenge: mitigate downside — apply resources to drive to the upside. 40© SAP 2009
  42. 42. Do we have the resources to address the three critical factors? Value Optimization Resource Optimization Portfolio Navigator™ RPM 41© SAP 2009
  43. 43. Who is available to work on Teapot Project? 42© SAP 2009
  44. 44. Value Optimization Results Can be Used to Allocate Resources to the Most Important Projects Value analysis results returned to SAP RPM Optimized Scenario # 1 Optimized Scenario # 2 Optimized Scenario # 3 43© SAP 2009
  45. 45. Value Optimization Results Can be Used to Allocate Resources to the Most Important Projects 44© SAP 2009
  46. 46. Resources allocated: review results one quarter later. Value Optimization Resource Optimization Portfolio Navigator™ RPM 45© SAP 2009
  47. 47. Uncertainty narrowed and NPV increased. Before: wide range of uncertainty around key variables After: ranges of uncertainty have narrowed — value has increased 46© SAP 2009
  48. 48. Value relative to other products significantly increased 47© SAP 2009
  49. 49. Less risk — higher expected value. Teapot 48© SAP 2009
  50. 50. Management agrees to continue development “We have made great progress in addressing the critical uncertainties. Let’s move ahead. But keep your eyes on the value meter!” 49© SAP 2009
  51. 51. Best Practices • A portfolio is a collection of projects that enables comparison on a level playing field • Two kinds of portfolios: strategic and tactical. Track each at gate reviews • Develop ranges of uncertainty around each variable in collaboration with stakeholders • Do sensitivity analysis to identify opportunities for creating value • Charts, numbers and analyses are not ends in themselves; they provide insights and support meaningful discussion 50© SAP 2009
  52. 52. Discussion Topics Introduction - Pete Bussey, SAP America Realizing Product Development Value - Jim Brown, Tech-Clarity Portfolio Optimization: Creating the Greatest Value for Your Company - Don Creswell, SmartOrg - Tony DeRosa, Platinum DB Wrap-up / Q&A 51© SAP 2009 PB
  53. 53. Summary Portfolio management and optimization enable cost reduction today, and profitable growth in the future Identifying and monitoring the value of projects is a major challenge, and key to success Resources are available to help SAP customers readily extend their enterprise business platform to enable portfolio management and optimization, including cost-effective packaged solutions with fast ROI. 52© SAP 2009
  54. 54. Next Steps Learn more – request a free copy of the whitepaper ―The ROI of Product Portfolio Management: a How to Guide‖ by Jim Brown, Tech-Clarity, Inc. Assess - arrange a one-hour free private review of your portfolio optimization situation and options with Platinum DB and SmartOrg experts >> To request the whitepaper or the free consultation, contact: Kate Solis - ksolis@smartorg.com Engage- attend the SAP PLM Customer Network Forum June 10-11 at SAP Americas Headquarters in Newtown Square, PA. Meet SAP customer peers and SAP experts to learn best practices in leveraging SAP solutions for PPM and product development results. Hear customer case study presentations. >> For more information on the SAP customer event, contact: Pete Bussey - peter.bussey@sap.com 53© SAP 2009
  55. 55. Questions? 54© SAP 2009
  56. 56. Contacts Jim Brown, Tech-Clarity: jim.brown@tech-clarity.com www.tech-clarity.com Don Creswell, SmartOrg: dcreswell@smartorg.com www.smartorg.com Tony DeRosa, Platinum DB Consulting: tderosa@platinum-db.com www.platinum-db.com Pete Bussey, SAP PLM Customer Value Network: peter.bussey@sap.com www.sap.com/plm 55© SAP 2009

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