Portfolio Management for New Products

Portfolio Management for New Products is used to select a portfolio of new product development projects to achieve the following goals: Maximize the profitability or value of the portfolio, provide balance and support the strategy of the enterprise.

Product software development

Method engineering focuses on product software and information systems development methods. Product software is defined as software with accompanying materials which is sold in a particular market. Examples of product software are ERP software, office software and software development tools. This article is about portfolio management for new "software" products.

Portfolio management

How should a company invest its product development resources effectively? And how should it prioritize its development projects and allocate resources among them?These are crucial issues in new product portfolio management. A company who is able to optimize its R&D investments will have success in the future.

Portfolio management is a critical management challenge for three reasons:

"Firstly", a successful new product effort is fundamental to business success. This translates into portfolio management: the ability to select projects today that will become new product winners tomorrow.

"Secondly", new product development is the manifestation of the strategy of the enterprise.One of the most important ways for a company to operationalize its strategy is through the new products it develops. If new product initiatives are wrong, either thewrong projects or the wrong balance between projects, the company fails at implementing its strategy.

"Thirdly", portfolio management is about allocation of the company’s resources. The goal of a company should be to create value for the shareholders. Technology and marketing resources simply are too limited to waste on the wrong projects. The consequences of poor portfolio management are clear: A company spills the limited resources and as a result does not give deserving projects a chance.

Much research has been done to discover the reason of new product success: Research (Cooper et al., 2000) has led to many reasons. Studies on why new products succeed show that there are ten critical success factors:

Product lining

Portfolio management is linked with product lining. Product lining is the marketing strategy of offering several related products individually (Ardis, M., Daley, N., Hoffman, D.M., Siy, H. and Weiss, D., 2000). A line can comprise related (software) products of various functionalities, qualities or prices (Brownsword, L. and Clements, P., 1996). Line depth refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are.

Domain and Application Engineering

Recently several organizations have promoted the idea that systems should be developed using domain analysis to generate a domain-wide model of requirements, followed by a domain-wide architecture, followed by domain-applicable software components. This activity is called domain engineering. A complementary activity, application engineering, then takes place to produce the requirements document, design, and software components for a specific member of the family. Application engineering can be linked to product lining, when various similar software products are created from domain-applicable software components.

References

* Ardis, M., Daley, N., Hoffman, D.M., Siy, H. and Weiss, D. (2000). “Software Product Lines: “A Case Study”. Software – Practice and Experience, 30(7), pp. 825-847.
* Brownsword, L. and Clements, P. (1996). A Case Study in Successful Product Line Development. Technical Report CMU/SEI-96-TR-016, Carnegie Mellon.
* Cooper, R.G.(2000). “Doing it Right, Winning with New Products”.Ivey Business Journal, 64(6)
* Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (1998). Portfolio Management for New Products. Reading, MA: Addison Wesley
* Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (2000). “New Problems, New Solutions: Making Portfolio Management More Effective”. Research Technology Management, 43(2).