Is your R&D portfolio producing the right balance of incremental improvements and innovative projects necessary to stay ahead of the competition? Are you funding too many incremental improvements over potential breakthrough innovations? Is focusing on ROI providing you the right portfolio mix?
These are the types of questions that many of our clients are facing as they strive to outpace the competition. This competition is advancing from all sides, including traditional competitors as well as upstarts coming seemingly out of “left field.” In order to win in the marketplace, product development and manufacturing companies need a robust R&D portfolio, one that provides a well-rounded pipeline of future products.
Companies typically don’t lack for interesting potential projects or programs vying to be included in the portfolio — they lack the appropriate mechanisms and strategic rigor to determine what projects should “make the cut” (and receive the needed funding and personnel). What can be done to address this? Our experience points to 4 key elements:
Align Strategically — specify whether and how a project explicitly furthers strategic goals. Many companies fund projects in the portfolio by focusing primarily on what we call “value to the company”, such as ROI. Including value to the company is necessary, but not sufficient in portfolio optimization — overreliance on it results in an unbalanced portfolio. Strategic alignment focuses on how well the candidate project advances strategic goals, ideally by market segment. The prerequisite here is clarity regarding the competitive goals of the company (by product line) in each segment and geography, as well as a clear understanding of “how you’ll win” in each.
Tie to Value to the Customer — identify the specific value that the project brings to the customer. This value is defined by the factors that are most important to the customer. This is not easily determined, but is critical to an optimized portfolio and provides the added benefit of focusing on a deeper understanding of customer needs and how your products are used by customers to create value. For one customer, we created a graphic representation — based on analytics established by Marketing & Engineering — that clearly depicts this value across a few key criteria versus both the competitive product and the closest internal product.
Categorize – another key to attaining (and maintaining) an appropriately balanced product portfolio is to assess and categorize types of projects flowing into R&D — are they breakthroughs, differentiators, followers? When we did this at one of our large manufacturing clients, they realized that their R&D portfolio was too heavily weighted toward incremental improvement (“me too”) projects and not enough truly innovative potential “game changers.” A rigorous set of criteria and assessment to determine the category in which a project resides enables proper allocation and encourages development teams to focus on the ways to create value that matter most to customers.
Simplify – new product proposals/justifications typically rely on lengthy documents, spreadsheets, presentations, etc. in an effort to display rigor and provide proposal gravitas. Yet the executive team making R&D portfolio decisions can rarely read (much less digest) all this documentation. If the elements outlined above are rigorously and consistently developed, then it’s possible to concisely pull all of the information together into a short (even single page!) document highlighting the key elements required for decision-makers to make an informed R&D portfolio decision, or inquire more deeply into the issues that really matter.
Incorporating these keys into your company’s process for shaping the R&D portfolio will not only focus your decision-making, but it will result in a strategically optimized product portfolio to stave off (and gain market share) from competitors.