Goals And Benefits of NPD portfolio management

What is New Product Portfolio Management?

Portfolio management helps firms achieve long-term success by identifying the best new product opportunities.

Firms that utilize portfolio management techniques end up with a valuable, balanced, and strategically-aligned portfolio of new products that will enable them to continue to grow and prosper. NPD portfolio management offers a comprehensive and systematic product portfolio management tool.

The ability to develop a steady stream of new products is critical to the long-term success of firms. New products enable firms to enter new markets, use new technologies, and increase revenue and profit streams.

However, often firms have a multitude of potential products to choose from. A new product portfolio is the set of new products that a firm has under development. Hence it does not include R&D projects, process improvement, and those products already launched in the market.

Portfolio management helps firms decide which new products are worth pursuing and which products should be avoided. It helps managers rank potential products, identify the best projects, and allocate resources accordingly. Therefore, the end result of new product portfolio management is a manageable set of projects that represents the best combination of financial returns and future opportunities.

Goals of NPD portfolio management

An ideal new product portfolio will be valuable, balanced, and aligned. Therefore this tool helps in the pursuit of three goals: to maximize the value of the set of the new products, balance the set, and align it with firm strategy.

Maximize value

Maximization of value means the pursuit of projects with the greatest earnings potential, which enhance the value of the firm in the short and long term. It is necessary for firms to determine which combination of projects will maximize the value of their portfolio. This portfolio tool helps assess each project's value to the business.

Balance various types of projects

Firms must strike a balance between long-term and short-term projects, risk and return, new versus current markets, and new versus current technologies. Firms often have too many marginal projects and too few breakthroughs. Simple, low-risk projects such as minor product modifications provide the bread-and-butter as their revenues are more certain and resource requirements smaller. However, pursuing only incremental "me-too" products, firms struggle to remain competitive. It is critical for firms to have innovative projects that could lead to competitive advantage and future growth. Innovative products may build new resources and competencies that will provide entry into new markets and technologies.

Align products with the firm's strategy

Strategic alignment means that the portfolio of projects reflects the firm's overall business strategy. Some strategy goals include maintaining a certain level of profitability, entering particular markets, moving into new technologies, and managing risk. Strategic alignment ensures that new product efforts support these goals. Without alignment, projects may be undertaken that do not reflect the business strategy.

Activities of NPD portfolio management

The five different components of NPD management:

Assess

Poor evaluations lead firms to lose potential profits and miss out on growth opportunities. This tool evaluates the attractiveness of every product opportunity. It systematically assesses projects in terms of profitability, risk, and growth into new markets and technologies.

Select

Firms cannot waste scarce resources on products with little promise. This tool helps to identify which products to pursue and facilitates tough Go/Kill decisions. The tool helps to make tough choices, because it compares each new product to alternative opportunities.

Prioritize

There are often many more opportunities than resources to pursue them. This tool helps with prioritization, that is, which projects to focus resources on and which to accelerate. The joint consideration of all projects compares the merits of all the options and reveals the opportunity costs of working on mediocre products. The best new products are given priority.

Allocate

Often limited resources are applied to the wrong projects and deserving projects are starved of resources. This tool helps to allocate resources among alternative projects in order to maximize the return to development resources, balance the portfolio, and align projects with the firm's strategy.

Monitor

This tool helps to track which projects are ongoing, their status, their purpose, and their expectations. By presenting the whole portfolio all projects become visible and therefore have to be justified against other opportunities. As the portfolio analysis is repeated over time progress can be tracked.
Create An Account
let's go

Benefits of NPD portfolio management

Portfolio decisions are critical because of the considerable resource commitments and opportunity costs involved in developing and commercializing products. Furthermore, such decisions ultimately determine profitability and growth.

Comprehensive Information

Because the tool requires certain data to be entered, it serves as a check that the required data on each project is available, considered, and that assumptions are made in a reflective manner. It forces collection and analysis of evidence necessary to make good judgments. The tool allows new product decisions to be based on evidence and careful analysis, rather than on uninformed opinions and emotions.
Get started

Prevent Project Overload

NPD portfolio management helps to match the number of products to development and launch capacity. Most firms take on far too many projects for the limited resources available, scarce resources are spread too thin, projects are delayed, market windows missed, and morale suffers. Elimination of less attractive products frees up resources for better ones. The right number of projects is pursued, and a quality job can be done on all of them.
Get started

Finish Projects On Time

Firms often suffer 'pipeline gridlock' - a lack of progress of product innovation efforts because there are too many active projects. Companies that pursue fewer projects finish them quicker. When too many projects are pursued, critical projects are starved of resources and employees are overwhelmed. Delayed product launches risk being beaten to the market by a competitor.
Get started

Avoid Project Isolation

Portfolio decisions consider all projects together, which are compared against one another in terms of various criteria. The tool does not treat each project in isolation, but takes a broader perspective by which various opportunities are prioritized.
Get started

Facilitate Discussion and Decision-Making

The tool can facilitate discussion and joint decision-making. It can serve as a common basis for discussion and to communicate priorities throughout the organization. A good discussion based on common ground ensures that participants share information, examine their assumptions, and that critical considerations are not overlooked.
Get started

Support Morale, Buy-in, and Accountability

As the portfolio analysis is repeated over time, the project's results are compared against the original projections. The tool enhances transparency as the reasons for selecting some projects and killing others become comprehensible to all.
Get started

Professor Erwin Danneels

Erwin Danneels is an associate professor in the School of Marketing and Innovation, teaching new product development, a graduate level entrepreneurship course. He is also Muma Fellow. He was a visiting professor at the Tuck School of Business, Dartmouth University, Goizueta Business School at Emory University, and at Bocconi University in Milan, Italy. He also was externship faculty with M-Ventures, the corporate venture arm of Merck KGaA.

Danneels’ main research stream focuses on the growth and renewal of corporations in the face of changing technological environments, through product innovation and corporate venture capital. He has also studied early stage ventures, within new firms as well as established ones, and the nature of entrepreneurial opportunities.

He has published in top academic journals such as Strategic Management Journal, Organization Science, Academy of Management Review, Journal of Business Venturing, Journal of Product Innovation Management, Strategic Entrepreneurship Journal, Research Policy, Industrial and Corporate Change, and MIT Sloan Management Review . Three of his articles have been recognized as “blockbusters” (being cited over 1,000 times): on the effect of product innovation on building of new firm competences, on the nature of disruptive technology, and on the various ways to think of and measure the innovativeness of new products. His articles have been cited over 8,000 times. Keenly interested in the practical application of this scholarly work, he also consults and conducts corporate training on new product portfolio management and organizational renewal.

He earned a PhD in business administration from Penn State University, an MBA from Ghent University, a master's degree from the University of California at Davis and a bachelor’s degree in sociology from Ghent University.