185© Springer India 2014 K.B. Akhilesh, R&D Management, DOI 10.1007/978-81-322-1946-0_14

Abstract When it comes to describing actions, situations, and organizations, moments play an important role. To capture these moments in each step, actions and strategy portfolio management provides a holistic view to govern project of activity in R&D organization. This chapter gives a brief introduction, objective, scope, and different methods of portfolio management.

Learning Objectives : To understand portfolio management and its importance in an organization; to present a holistic picture on various features of portfolio management.

Keywords Portfolio management • Portfolio alignment and balance • Objectives of portfolio management • Balancing portfolio • Methods of portfolio management

14.1 Introduction

An organization can have several projects of different nature at the same time. The uncertainty surrounding individual projects leads them to fi nd out some of the tools or methodologies to balance risk and reward in such a way as to reduce the overall uncertainty. Portfolio management is one such kind of methodology/tool adapted across all the sectors of the industry. The practices of portfolio management differ across the different continents.

Portfolio management technique is a process for a project or activity or even business unit to acquire a balance between risks and returns, stability and growth, attractions and drawbacks, by making the best use of limited resources.

The objective is to establish priorities and allocate resources to deliver business strategy.

From Fig. 14.1 , it can be understood that portfolio management can be imple-mented in a project, that is, if a project is in pipeline or even if any idea/strategy is pitching up in the market. It helps an organization to allocate the resources as per the need of the hour and predicts when to expand and when to diversify.

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14.2 Portfolio Alignment and Balance

Portfolio alignment and balance is required in an R&D organization. The mission and vision of an organization must be known and well understood down the line of work-fl ow. The management must identify the company’s strategic business driver to sus-tain in the market. The Research and development organization has to be on its toes always. The skilled multidisciplinary teams must be working together to bring out new changes in the ongoing products as well as development of new products. The technical team must work in close association with the marketing team and customer relation team so that monitoring of the business performance is up to date, and based on evolution of technology and customer taste/response, ongoing projects can be terminated or new projects can be launched well within the time. For this to happen, the capability of an organization in all departments must be up to date. There should be no hindrances in transfer of technology from one group to another. This policy has to be well defi ned because it will help management to create short- and long-term road map for an organization. In short, project portfolio management must remain strategi-cally balanced and well supported by the organization capabilities, such as its knowl-edge base, technology base, marketing base, and customer relation base.

14.3 Portfolio Alignment Model

Research and development activities can prioritize projects involving a challenging activity. The starting point of portfolio management is the role of the business heads (Fig. 14.2 ). The business heads need to critically understand vision and mission of

Fig. 14.1 Implementation of portfolio management

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the organization, operations capabilities of the organization, and assess inputs from customer relationship management. Vision and mission help analyzing both short- and long-term goals. They clearly defi ne the business model, which helps in clarify-ing the value creation process. Value is what the customers are ready to pay for, that is, the organizational products and services. Business heads need to review the capa-bilities of the operations. They should analyze the capacity constraints, quality of the performance, and also delivery capabilities. Such an assessment would help them to critically see the new product and visualize its specifi cations. Customer relationship management is driven by the feedback obtained by both the internal and external customers about the products and services. Deviations and defects are important points for learning and development. Systematic methods need to be deployed to gather customer experiences. Business heads need to convert these experiences into new product defi nitions and enhanced product support activities.

Research and development strategy gets defi ned around the continuous interaction of the scientists and engineers with business heads as well as through clear articulation of the requirements, and improvements and features will help scientists and engineers to come up with ideas and proposals. Proposals contain scope of the project, specifi c objectives, timelines, and deliverables. Portfolio man-agement involves a joint decision making about various proposals to commit resources and provides support.

VisionMission

OperationalCapabilities

CRMInputs

BusinessHeads

DemandsResources

R&D Strategy

Projects

Expectations

Fig. 14.2 Portfolio alignment model

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14.4 Objectives of Portfolio Management

Portfolio management focuses on continuously assessing the changes in customer demands, critically evaluating technology developments, and use of resources. Hence, the goals of portfolio management would involve three main objectives. The fi rst objective is to identify, assess, and evaluate technology life cycle. Every technology will follow an s-curve; it has a birth, growth, maturity, and decline phases. Portfolio managers should qualitatively and quantitatively analyze every technology in relation to respective s-curves.

The second objective of portfolio management is to classify the existing activi-ties and projects. They need to decide which projects require competent and better people, projects requiring capital resources and projects demanded by the customer, and projects relevant to organizational positioning and projects that need to be discontinued.

The third objective of portfolio management is to relate the existing technologies to the technology road maps. Research and developmental activities need to be prioritized. Based on the road maps drawn, one need to see which of the technolo-gies and projects are being implemented within the time and resource constraints, which projects have different degrees of uncertainties and complexities, and which are those projects facing challenges of implementation. Effective stage-gate processes need to be evolved that detect problems early and continuously monitor resources and implementation.

14.5 Need of Portfolio Management

We know necessity is the mother of all invention. Once a product is developed or launched by a company, it goes under s-curve of business life cycle as shown in Fig. 14.3 .

14.5.1 Balancing Portfolio According to Strategy

Figure 14.4 provides perspective on balancing project portfolio. In this project, status and their strategic comparatives need to be compared with strategic objectives of the organization. Go-or-kill decisions need to be made in order to keep a priori-tized project on the fast track and the remaining ones in some slow tracks.

Balancing portfolio involves the following:

(a) Identifying and assessing critical technological advances (b) Detecting discontinuities (c) Recognizing new and emerging technologies

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Fig. 14.3 S-curve of business life cycle

Fig. 14.4 Balancing portfolio

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14.6 Methods of Portfolio Management

Portfolio management is a balancing act among the competing research activities, ideas, and proposals. Each of the projects needs to be compared with others which have minimum risk, maximum impact and returns. Organizational factors, such as ownership, philosophy, age of the organization, and other factors need to be consid-ered while assessing the projects. Many of these methods have been discussed in the earlier chapters. In portfolio management, the focus is on comparisons. Comparisons are done between the projects as well as over a period of time. Good managers use process and methods of ranking, factor-by-factor comparison methods, as well as waited point’s method.

14.6.1 Ranking Method

In the ranking methods, projects and proposals are compared as a whole from one to the other. Scientists and engineers as well as managers obtain consensuses on continuation or discontinuation and prioritization of the considered project.

14.6.2 Factor Comparison Method

In factor comparison method, certain attributes of the projects are identifi ed (approximately 7). They include capabilities, resource intensity, requirement of time, usefulness to the team, usefulness to the division, relevance to the organiza-tional short-term goals, relation to strategic goals, and so on. Each of the factors will be rated on a fi ve-point scale; 1 being very low and 5 being very high. The high-rated projects based on the factor methods are further analyzed to keep or support and the low-factor rated activities will be dropped from the portfolio.

14.6.3 Weightage Point Method

In the factor comparison method, each of the identifi ed factors was given equal weightage in practice; some factors are of more importance and hence should be given a better weightage. Different weightages are assigned among the considered factors to arrive at a value for each of the projects in the portfolio. Furthermore, decisions are made about continuity and discontinuity of the projects.

Portfolio management exercise should be done once in a year and should not be an ad hoc, impromptu, or emotional process. An objective-detached engagement is necessary to arrive at appropriate decisions. An undermanaged portfolio management

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will result in confusion, chaos, and confl icts. In other words, better-managed portfolio selection process will contribute toward individual effectiveness, better resource utilization, and enhanced team performance.

Questions

1. Explain the portfolio alignment model. 2. State and explain various methods of portfolio management.

14.6 Methods of Portfolio Management