NPD Tales

Nathan Kontny from Inkling introduced a novel idea associated with Portfolio Management.

Portfolio Management ultimately depends on forecasts and predictions of development cost, sales volumes and revenue to provide a method of prioritising projects.  With a nod to James Surowiecki, Inkling have produced a tool that facilitates a more collaborative approach to refining those forecasts and predictions.  By answering some simple questions based on the original ‘guesses’, multiple users have an influence on adjusting the values for expected launch date, development cost, ROI etc.

An example portfolio has been set up (Inkling Portfolio Management Example) and you can try the system out with your on collection of projects (Inkling Portfolio Management Tool).

The idea is still at prototype stage and Nathan is looking at refining it – particularly the parameters that people will be asked to give their opinion on, but it looks very interesting even at this early stage…

The previous posts have focussed in turn on the three key factors influencing NPD productivity (People, Project and Portfolio).  However substantial improvements to the overall performance of NPD activities can be achieved by examining the interface between all the associated elements of the three factors – for example.

- Resource availability influencing project prioritisation

- Engineer motivation being increased by communicating the reasoning behind portfolio management decisions

- Having a real time exchange of resource planning and project planning throughout the life of the project to adapt to changes in project schedule or priorities

- Effective communication of the results of project reviews to ensure engineers are not ‘left in the dark’

- Identifying the dependence of sales forecasts on launch date to ensure project planning and control are meeting business needs

- Feeding back project review results to drive portfolio management activities and adjusting priorities of all projects accordingly

The list is almost endless and the key is a dynamic exchange of information.  How can that be achieved?

I’ve raised the subject of Enterprise Wikis before and there is an increase in the number of real time collaborative tools (like SamePage, BaseCamp and MS SharePoint).  Some even suggest that a complex extension of highly integrated ERP or PLM tools are the answer.  I feel that understanding the need for such exchange of information is as important as the choice of tool.

Portfolio Management when applied to new product development is simply a multivariate analysis of the factors that determine the importance of a new product development opportunity and a method of assigning a priority to each opportunity.

At it’s basic level it should involve some quantitative analysis of the forecast revenue, profit and return on R&D investment.  The biggest challenge here is to get accurate sales forecasts, it’s usually easier to predict R&D costs.  I have seen analysis that has used simple statistical analysis of the product financials to take into margins of error for the forecasts and estimates.

More complex analysis of qualitative factors (like technical risk, existing market fit and strategic value) can be achieved by assigning quantitative values to them.  At this point the analysis becomes much more interesting – advanced visualisation can be used to determine the viability and priority of each project against the whole portfolio and where it fits in the overall innovation strategy.

Of course it’s important not to get carried away – an incremental approach of starting simple and increasing the complexity of analysis over an extended period of time can deliver early benefits before finding the optimum level.

The overall process of new product development and innovation encompasses an wide variety of elements.  This blog regularly explores a number of ideas and tools which hopefully provide inspiration in the quest to improve the efficiency and productivity of many of these elements of NPD.

This short series of 5 posts will explore the more fundamental issue of how the different pieces of the picture are assembled and how they relate to each other.  The two main conclusions will be how successful NPD depends upon a combination of three main topics: -

- People

- Project

- Portfolio

and the exchange of real time information between these three is as important as improving performance in any specific area.

In product development departments why do we run several projects concurrently?

The explanation that stands up to most scrutiny is that it ensures efficient use of resources – you don’t want your embedded software programmers sat around idly waiting for the target hardware to be completed.

Then of course there’s the argument that putting too many people on one project generates an overhead that affects productivity.

But all too often the opportunity to prioritise one project over the others and reduce the time to market is ignored or only explored when the project is running late…

At some point during the start of the product development process, most organisations will review the financial details of a potential project.  Generally, the key figures are associated with product cost, sale price, volumes and development cost.  These will be analysed to provide figures for margin, overall revenue and payback period.  These figures will provide indication as to whether the development project should go ahead.

For most manufacturing organisations the analysis is based on the assumption that the product revenue is realised only at the point at which the product is sold.  More astute manufacturing organisations exploit opportunities to gather recurring revenue based on their products and this can greatly increase the viability of product development projects.

More interestingly, I was recently involved with organisations that primarily provide services based on third party products.  Financial analysis of the development of their own bespoke products with lower cost, increased performance and hence increased recurring revenue identified some very lucrative opportunities.

New product development is not just for manufacturers…