What are the secrets to achieving superior portfolio and NPD results? Recently I read the "Effective Project Selection Maximizes NPD Productivity" white paper by Dr. Robert G. Cooper and Scott J. Edgett. Here are 10 key takeaways from this insightful paper, illustrating how leading companies perfect their project selection methods.
1. Focus on data integrity – front-end load the project
Fact-based decision-making in NPD pays off! Best performing businesses are twice as likely to obtain solid information on market size and market potential prior to development as worst performers.
2. Install a systematic idea-to-launch process and make the gates work
Gates are much more than just a project review or milestone check point. Rather, gates are the Go/Kill decision points in the process where resources are allocated to the positive projects, which then move forward. Equally important, gates are where weak projects are spotted and culled out before additional resources are wasted.
3. Adopt an incremental commitment or “options” approach
A common management team mistake is to make an irrevocable “Go decision” on a NPD project very early in the project when relatively little is known, and then never seriously consider stopping or killing the project once past this initial Go decision. As resource commitments increase at successive gates, information improves and uncertainties are reduced, making management of risk easier.
4. Know when to walk away
The point is that Go/Kill meetings must yield some kills, and unless some projects are stopped, the gatekeepers are not doing their job.
5. One size does not fit all
There are huge differences between small incremental projects, genuine new products, and platform developments. It’s imperative to recognize these differences and handle each accordingly.
6. There is no one best way to pick projects – so triangulate
Best performing businesses rely on an average of 2.4 new product selection methods per firm, simply because one alone won’t do the job.
7. Try scorecards – one of the top-rated but overlooked methods
The theory is that if you can explain success, you can predict success. So construct a scorecard using these same factors that are known drivers of success, and use the scorecard at your gate meetings to rate and rank projects. This scoring exercise and final score become key inputs during the Go/Kill decision.
8. Use success criteria
Success criteria typically include metrics on profitability, first year sales, launch date, and even expected interim metrics, such as test market results. The method allows the project team to custom-tailor criteria to suit the nature of their project.
9. Use the right financial approaches
At some point, projects must be prioritized against each other simply because resources are constrained. For new product projects, which involve uncertainty and risk, consider using a probably-adjusted NPV (net present value). The Productivity Index, an extension of NPV, is another option.
The Productivity Index is a financial approach based on the theory of constraints. The argument here is that, in order to maximize the value of your portfolio subject to a constraining resource, take the factor that you are trying to maximize – for example the NPV – and divide it by your constraining resource. The method is designed to maximize the productivity of your portfolio yet stay within a resource limit.
10. Build in periodic portfolio reviews to force rank your projects
Setting up a gating process is an excellent first step, but it’s not enough. One problem is that projects are evaluated one at a time at gates, but are never compared against other projects. Nor are resource constraints considered when projects are viewed in isolation at gates. It becomes too easy to say “yes” to every project at a gate, and can result in pipeline gridlock.
To correct this yea-saying tendency, use portfolio reviews in conjunction with gates. Here the focus of a portfolio review is on the entire portfolio of projects.
Don’t use a gut feeling, shoot-from-the-hip approach when planning your resource allocation and future investment strategies. Picking the right portfolio of projects is paramount to maximizing your NPD productivity. It’s time to move forward: design your portfolio management system by following the guidelines above, experiment with it, get the gatekeepers to endorse and commit to using it; and then stick to it.
Visit www.sopheon.com/stage-gate-innovation/ to see how automating Stage-Gate and other methodologies for NPD is possible with integrated innovation management software.