Are you picking winners in your product portfolio or picking whiners? What might sound like a silly question has a very serious foundation: in company after company we observe funding going to projects supported by the most vocal, politically-savvy, or persistent leaders. Meanwhile, those projects best aligned with strategy or those developing novel technologies, markets, and business models are left behind.
Here are three best practices that help companies make hard decisions that consistently bolster long-term growth prospects.
- Have an actionable strategy
- Collect more than metrics on each opportunity
- Practice transparent, data-driven decision making
Have an Actionable Strategy
Strategy must go beyond “delight the customer” or “grow the business while having fun”. The more concrete your strategic goals, the easier it will be to assess whether and how each project moves the needle closer to your goals.
Effective goal statements describe the arenas (regions, technologies, channels, etc.) where growth will occur. Roadmaps describe the specific activities in those arenas required to attain growth targets. Finally, spending forecasts in each arena are tied to the activities and provide a guideline for how many resources are required within and across the identified arenas. You can use these spending forecasts to easily identify the gaps in your actual spending across critical strategic arenas.
For more on building an actionable strategy, start with this blog post.
Collect more than Metrics on each Opportunity
The allergy some executives have to the use of net present value (NPV) for portfolio decision making is reasonable; NPV is a blunt proxy for value and it reveals nothing about the assumptions upon which it is built. The metrics you collect on each opportunity should be thought of like the cover of a book: you’ll get a sense of what’s inside, but it is no substitute for reading the book itself. Open each book, and you should find information on the market, the technology, and the customers’ unmet needs. Metrics will help you identify compelling projects for discussion, and the more detailed information you’ve compiled will give management confidence to make funding decisions.
A system such as the Enrich Analytics Platform that provides a single source of truth for all opportunities and compiles metrics, milestones, and narrative information on assumptions in easy-to-digest reports is a critical piece of the decision making machinery.
Practice Transparent, Data-Driven Decision Making
In many companies, management can’t describe the ideal project, but they’ll know it when they see it; I can’t think of a better way to demoralize teams than that! The product teams will exhaust themselves trying to second-guess management’s whims of the week/month/quarter. Even worse, those changing whims mean that projects funded today may have their funding clawed back later to fund the latest shiny rock.
Transparent decision making begins with an actionable strategy so that teams understand exactly what types of projects will be valued due to their strategic impact. Next, a common, agreed-upon set of information is compiled for every opportunity. This levels the playing field for all initiatives: if they provide a complete set of information, and demonstrate strategic contributions, they can expect to be seriously considered for funding.
The final piece in transparent decision making relates to how decisions are made: management needs to base decisions on the information compiled. If the information is found wanting, or if management disagrees with the conclusions, this should be part of the decision record. If funding is granted, clear goals for the project in the next budget cycle should be linked to the funding so that in the next budget cycle everyone can measure project progress when considering future funding.
Coda: Not all ‘Winners’ will be Winners
The toughest truth of portfolio management is that we have imperfect information about the technology, the market, and the business at the time we make investment decisions. It takes a strong, resilient culture to celebrate failure, even when we make prudent decisions. It is always easy to second-guess decisions with the benefit of hindsight, and this fact makes a systematic and transparent process all the more important.
If we are to learn from our failures, we need to have a easy-to-follow record of why we made the decisions we did, and what we discovered afterwards that caused us to rethink our course of action. Without this record teams can discredit the entire process, and use less civil (and less civilized) methods that appeal to management’s fears and baser instincts. Because we know there will always be teams looking for an inside edge to project funding, implementing the right process will ensure that the collective wisdom of the organization is applied to every critical R&D decision.