What is Portfolio Management?

A vital question in the product innovation battleground is, "How should corporations most effectively invest their R&D and new product resources?" That is what portfolio management is all about: resource allocation to achieve corporate new product objectives.

Today's new product projects decide tomorrow's product/market profile of the firm. An estimated 50% of a firm's sales today come from new products introduced in the market within the previous five years. Much like stock market portfolio managers, senior executives who optimize their R&D investments have a much better chance of winning in the long run. But how do winning companies manage their R&D and product innovation portfolios to achieve higher returns from their investments?

There are many different approaches with no easy answers. However, it is a problem that every company is addressing to produce and maintain leading edge products. Portfolio management for new products is a dynamic decision process wherein the list of active new products and R&D projects is constantly revised. In this process, new projects are evaluated, selected, and prioritized. Existing projects may be accelerated, killed, or de-prioritized and resources are allocated (or reallocated) to the active projects.

Portfolio Management - A Problem Area!
Recent years have witnessed a heightened interest in portfolio management, not only in the technical community, but in the CEO's office as well. Despite its growing popularity, recent benchmarking studies have identified portfolio management as the weakest area in product innovation management. Management teams confess that there are rarely serious Go/Kill decision points and, more specifically, no criteria for making the Go/Kill decision. As a result, companies are facing too many projects for the limited resources available!