R&D Project Portfolio Management at Volvo Powertrain Conceptualizing new project selection tools

Master of Science Thesis in the Master Degree Programme:

Management and Economics of Innovation

JOHAN SVENNUNG CHRISTOPHER SÖDERSTRÖM Department of Technology Management and Economics Division of Project Management

CHALMERS UNIVERSITY OF TECHNOLOGY Göteborg, Sweden, 2008 Report No. E 2008:092

MASTER’S THESIS E 2008:092

R&D Project Portfolio Management at Volvo Powertrain Conceptualizing new project selection tools

Johan Svennung

Christopher Söderström

Supervisor, Chalmers: Per Svensson, Head of Department and Senior Lecturer

Supervisor, Volvo Powertrain: Sören Udd, Advanced Engineering Manager

Department of Technology Management and Economics

Division of Project Management

CHALMERS UNIVERSITY OF TECHNOLOGY

Göteborg, Sweden 2008

R&D Project Portfolio Management at Volvo Powertrain JOHAN SVENNUNG, CHRISTOPHER SÖDERSTRÖM © Johan Svennung and Christopher Söderström, 2008 Master’s Thesis E 2008:092 Department of Technology Management and Economics Division of Project Management

Chalmers University of Technology SE-412 96 Göteborg, Sweden Telephone: + 46 (0)31-772 1000

Chalmers Reproservice Göteborg, Sweden 2008

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EXECUTIVE SUMMARY This report describes how Volvo Powertrain has organized their Advanced Engineering project selection activities in what is called the Advanced Engineering Planning Process (AEPP). This planning process consists of many elements which provide structure, while at the same time allowing for flexibility. Also, three, by the literature, recommended tools for project selection are in use within the process – roadmaps, sub project portfolios and pairwise comparisons. Moreover, besides product features, a quite large number of informal evaluation criterions are being used for screening and selecting projects. Many problems and drawbacks with the current project selection activities have been identified. This includes: lack of guidelines and criterions; need for comparing project proposals from different units; need for more systematic project prioritization meetings; projects prioritizations are highly influenced by individuals, and somewhat by chance; prioritization discussion can be very verbose as well as too hasty; low-risk projects are often chosen instead of more complex long-term projects. However, several advantages with these selection activities have been identified as well. This includes getting constructive feedback and criticism, and thorough discussions creating organizational anchoring of the projects and understanding of why the projects are important. A Technology Merit Evaluation Tool (TMET) is suggested in order to address these issues as well as increasing the value of the project portfolio, the risk-reward balance of the portfolio, and the alignment between the business strategy and the portfolio. The TMET consists of a scoring model and a bubble chart. It is suggested that VPT uses a scoring model for evaluating project proposals upon relevant criterions – including product features. This would produce a ranking list of the projects as well as increasing the structure, systematization and objectivity during project selection activities. The bubble chart can be used for increasing the balance of the portfolio as well as communicating the result from the scoring model. One suggestion is that the sub systems first use the TMET for ranking their project proposals in connection to the creation of AE Sub Programs. The proposals they are unsure to receive founding for should afterwards be sent to a cross-functional group with participators from the sub systems, Concept and Product Planning and perhaps even GAEC. This group then ranks this blend of proposals so that resources can be allocated to the best projects, independently of which source created them. However, these ranking activities should start with the criterion ratings already made within each sub system in order to save time. Moreover, guidelines should be derived from the scoring model’s criterions and used when screening project proposals and creating roadmaps earlier during AEPP. Furthermore, perceived advantages of AEPP appear to be or result from the structure and flexibility of this approach. However, it seems as VPT should consider increasing the communication, feedback and knowledge sharing between different units and participators in AEPP. There also appears to be a need for more and better distributed deadlines and time plans. Keywords: project portfolio management, project selection, technology selection, strategy

implementation, resource allocation, R&D management, scoring model, evaluation criteria.

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ACKNOWLEDGEMENTS We would like to thank everyone – inside and outside Volvo Powertrain – for their participation in and contribution to the project that have resulted in this report. It would not have been possible to run this project without you or reaching the result that have been made. It has indeed been a rewarding and developing experience. The support and feedback from our supervisors Per Svensson and Sören Udd have been insightful and decisive. A special thank goes to Niklas Thulin for acting as a gate-keeper, letting us into Volvo Powertrain’s organization and making Sören Udd interested in our involvement. Johan Svennung, Christopher Söderström Göteborg, 2008

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Table of contents

1. INTRODUCTION ............................................................................................................1 1.1. Volvo Powertrain AE require a project selection tool ...................................................1 1.2. Deliverables in this report ............................................................................................2

2. RESEARCH DESIGN AND METHODS........................................................................3 2.1. Research design elements.............................................................................................3

2.1.1. Literature review...................................................................................................3 2.1.2. Investigation of external organizations ..................................................................3 2.1.3. Exploring VPT AE................................................................................................4 2.1.4. Workshops at VPT ................................................................................................4

2.2. Validity and reliability of the research design...............................................................5

3. REVIEW OF PROJECT PORTFOLIO MANAGEMENT LITERATURE .................7 3.1. The need for project portfolio management and the existing research...........................7 3.2. Defining project portfolio management ........................................................................8 3.3. The three goals in project portfolio management ..........................................................9 3.4. Towards a project portfolio management theory framework.......................................10

3.4.1. Framework for organizing project portfolio management ....................................12 3.5. Complexities involved in and problems due to poor project portfolio management ....14

4. METHODS AND TOOLS USED IN PROJECT PORTFOLIO MANAGEMENT ....15 4.1. Methods and tools for value maximization .................................................................15

4.1.1. Scoring models....................................................................................................16 4.1.2. Pairwise comparisons and analytical hierarchy procedures ..................................19 4.1.3. Project evaluation and selection criterions ...........................................................20

4.2. Methods and tools for achieving a balanced portfolio .................................................23 4.2.1. Bubble charts ......................................................................................................23 4.2.2. Pie charts ............................................................................................................24

4.3. Methods and tools for achieving a strong link between strategy and the portfolio .......25 4.3.1. Roadmaps ...........................................................................................................25 4.3.2. Sub project portfolios ..........................................................................................25

5. INVESTIGATION OF SCA TISSUE AND VOLVO AERO........................................27 5.1. SCA Tissue’s project selection process and methods..................................................27

5.1.1. SCA Tissue’s scoring model ...............................................................................29 5.1.2. Using the scoring model and the result ................................................................30

5.2. Learning from Volvo Aero Corporation .....................................................................31 5.2.1. The current project selection approach at VAC....................................................31 5.2.2. Previous project selection methods and tools used within VAC ...........................31

5.3. Commenting the SCA Tissue and VAC cases ............................................................33

6. THE PPM APPROACH AT VOLVO POWERTRAIN AE .........................................34 6.1. Volvo Powertrain’s product development organization structure................................34 6.2. Volvo Powertrain’s Advanced Engineering Planning Process ....................................34

6.2.1. Roadmaps development ......................................................................................36 6.2.2. AE project selection ............................................................................................37

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6.2.3. Concept...............................................................................................................38 6.2.4. Sub processes of AEPP .......................................................................................38 6.2.5. Volvo Technology involvement ..........................................................................39 6.2.6. Product Planning .................................................................................................40

6.3. Five sub systems – Five AEPP sub processes .............................................................40 6.3.1. Combustion.........................................................................................................41 6.3.2. Hybrid Technology .............................................................................................44 6.3.3. Base Engine ........................................................................................................47 6.3.4. Driveline .............................................................................................................51 6.3.5. Control Systems ..................................................................................................53 6.3.6. Comparing the sub systems AEPP approaches ....................................................56 6.3.7. Drawbacks and other issues in AEPP that a TMET could address........................58

6.4. Analysing the AEPP approach ...................................................................................61 6.4.1. The use of tools and methods ..............................................................................61 6.4.2. Organizational aspects.........................................................................................62 6.4.3. Procedural aspects...............................................................................................62 6.4.4. How to improve AEPP ........................................................................................63

7. TMET DESIGN, USE AND CONSIDERATIONS .......................................................65 7.1. A Scoring model and a bubble chart to include in the TMET .....................................65

7.1.1. The TMET needs to be complemented ................................................................67 7.2. Using the TMET........................................................................................................68

7.2.1. How to use the TMET in AEPP...........................................................................69 7.2.2. Aspects of importance to consider .......................................................................73

7.3. Developing a more simple version of the TMET ........................................................77 7.4. Concluding remarks ...................................................................................................78

REFERENCES ...................................................................................................................79

Appendix I: Interview guide ..............................................................................................83 Appendix II: Additional theory and methods to consider for project selection...............89

A.II.1. Financial tools ...................................................................................................89 A.II.2. S-curves and technology cycles .........................................................................90 A.II.3. Technology categorization.................................................................................91 A.II.4. Techno economic chain .....................................................................................94 A.II.5. A more quantitative scoring model ....................................................................96

Appendix III: Project evaluation and selection criterions ................................................98

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List of abbreviations AE Advanced Engineering AEPP Advanced Engineering Planning Process AEWS Advanced Engineering Workshop AHP Analytical Hierarchy Procedure CEO Chief Executive Officer EIRMA European Industrial Research Management Association GAEC Global Advanced Engineering Committee IRI Industrial Research Institute NPV Net Present Value PD Product Development PDMA Product Development and Management Association PhD Doctor of Philosophy PPM Project Portfolio Management PWC Pairwise Comparisons QFD Quality Function Deployment R&D Research and Development RM Roadmap RM1 Roadmap Level 1 RM2 Roadmap Level 2 RM3 Roadmap Level 3 RM4 Roadmap Level 4 ROI Return on Investment SCA Svenska Cellulosa Aktiebolaget TMET Technology Merit Evaluation Tool VAC Volvo Aero Corporation VPT Volvo Powertrain

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1. INTRODUCTION Project Portfolio Management (PPM) is an area of practice which addresses the need to choose projects to launch or proceed with among attractive and suitable project ideas and ongoing projects – due to scarcity of resources. The interest in PPM among researchers and practitioners has been growing in the recent years (Dawidson, 2006). As technological innovation is now days the most important driver of many competitive successes one might recognise the increased importance of PPM (motivating the increased interest) as PPM is one element of strategic management of technological innovation (Schilling, 2008). This report is the tangible result from the master thesis work that have been performed together with a local part of the global R&D-unit at Volvo Powertrain (VPT) in order to address problems and opportunities facing them in their daily work that concerns the PPM practice. The goal has been to improve their PPM approach in general and to develop a tool that can be used for ranking their technology development project proposals according their suitability.

1.1. Volvo Powertrain AE require a project selection tool

VPT is a business division that belongs to Volvo Group. Their objective is to develop and produce heavy engines, gearboxes and driveshafts for other divisions within Volvo Group [website A]. These products are used as parts in the other divisions’ products such as trucks, busses, construction equipment vehicles, as well as marine and industrial engines. VPT are delivering annual volumes amounting to 200,000 engines and 80,000 gearboxes [website B]. The R&D operation at VPT consists of Advanced Engineering (AE) activities, developing new technology, and Product Development (PD) activities, developing new products. However, VPT AE has more interesting AE project ideas than what their present and future resources can support. This means that VPT AE needs an appropriate approach, including processes and methods, for selecting the projects that would contribute to their division’s overall objective as much as possible. VPT AE includes those individuals and units involved in AE activities and related efforts. The main foundation or tools for project selection at VPT AE today are their product and technology roadmaps. The roadmaps show ongoing and planned projects in the AE phase and PD phase. The roadmaps show were and when the output from the various AE projects will be used as input for the PD projects and at what time these latter should be industrialised. The current decision making for project selection does not use any formalised foundation besides the roadmaps (excluding project descriptions and cost estimates). The decision making is mainly based on assessments by the individuals involved in the project selection process and discussions between them. This is judged by VPT AE to be insufficient or at least that there exist opportunities for improvements. VPT AE has therefore expressed a desire to develop a Technology Merit Evaluation Tool (TMET). The TMET is envisioned to be used for evaluating potential and running projects along different criterions, including expected contributions from the projects to important

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product features. Further project evaluation criterions that VPT AE initially judged as possibly suitable for the TMET are project cost, probability of success, and timing.

1.2. Deliverables in this report

The overall purpose of the master thesis project was to improve the way project selection is performed within the AE operation of VPT, and thereby increasing the likelihood that the right technologies are developed in the end. In order to make this contribution, the following deliverables are included in this report:

• A presentation of the ‘state of the art’ and ‘state of the science’ literature of:

o Project portfolio management o Project selection methods and tools o Evaluation criterions

• A description of the current situation at VPT, including:

o The project portfolio management approach at VPT o The evaluation criterions and methods used at VPT

• A description of relevant methods and learning from other appropriate firms

• A foundation and suggestions for VPT regarding how to develop a Technology Merit

Evaluation Tool

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2. RESEARCH DESIGN AND METHODS In order to accomplish the goals and objectives outlined in section 1 the following were done: literature review; investigation of VPT AE; investigations of external firms; two workshops at VPT AE.

2.1. Research design elements

2.1.1. Literature review

The literature review created a foundation for the forthcoming empirical investigations and activities as it provided an understanding of what questions to ask and the ability to interpret the given answers as well as assessing their importance. Finding suitable tools was of particular importance. The literature study was continued in parallel with the remaining parts of the work, but with lower intensity during the end phase. The literature that was reviewed can be categorised into one or more of the following subjects: Project portfolio management; Project selection; Technology selection; Technology management; R&D management; Innovation management; Strategic management; Project management; Strategic market management; Research design and methods.

2.1.2. Investigation of external organizations

The investigation of PPM approaches at external firms involved SCA Tissue and Volvo Aero Corporation (VAC). Common for these two firms are that they were judged as appropriate due to similarities regarding firm size, development operations, international spread, presence or activities. VAC was also appropriate as they are a part of Volvo Group, because they develop products that are similar to VPT’s, and they also have only a few large customers in the subsequent stage in the value chain. Regarding SCA Tissue, a more important reason for choosing this firm was due to the recommendation given by Ola Dawidson, who has performed in depth research of their PPM approach, as well as written the latest PhD thesis concerning PPM at Chalmers University of Technology. He has also worked with project portfolio management together with Product Planning at VPT. SCA Tissue was simply perceived as being most advanced regarding PPM (in the immediate surroundings) as well as having developed and used tools that were anticipated as appropriate for VPT AE. The main difference of the investigation of SCA Tissue and VAC is that the investigation of the former focused upon how PPM is performed today and is going to be performed, whereas the latter investigation focused upon project selection procedures, tools and learning’s from years a little more back in time. Common for both investigations was that responsible and experienced managers were interviewed. The face to face interviews were transcribed and tape recorded, while this was not possible for the phone interviews.

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Two representatives from SCA Tissue were interviewed: Malin Andersson, who is an International Business Project Manager; and Anders Gustafsson who is a manager at Wiper Systems. They both belong to the Category department which include both the product development and marketing units. The product development and marketing units is located in Göteborg and south western Germany. These interviews were not controlled by the researchers as the interviewees were quite self-driven, revealing and structured when describing their project selection approach and tools – in this way they were more like informants then respondents. Three representatives from Volvo Aero were interviewed: Bengt-Olof Elfström, a Research Director, Oskar Brännström who is an Innovation Manager, and Ulf Högman, currently PhD student at Chalmers but with many years of R&D experience from VAC. They all belong to the Department of Innovation Management and Technology Planning at VAC, in Trollhättan, Sweden. The interviews were performed in a semi-structured manner with interview guides.

2.1.3. Exploring VPT AE

Initially, the supervisor from VPT described their organizational structure and their Advanced Engineering Planning Process (AEPP) – the PPM process – and documents of these two elements were received. The supervisor also compiled a list of ten appropriate people involved in the AE activities to conduct interviews with – nine from VPT AE and one from Volvo Technology. Furthermore, two representatives from VPT Product Planning were interviewed as these are important stakeholders of AEPP as well as information suppliers to AEPP. These twelve interviews were one to two hours long and interview guides were used for all of them. The interview guide used at VPT AE was based on PPM literature, but particularly on the PPM framework developed by Dawidson (2006) and the interview guide used by Sandgren et al. (2005). This guide can be found in Appendix I. Additional interview guides were developed for the interviews with Product Planning and Volvo Technology. All interviews were semi-structured as well as tape recorded and transcribed.

2.1.4. Workshops at VPT

Two workshops were conducted together with the managers at VPT who previously had been interviewed. The first workshop was opened with a description of how the different units within VPT AE participate in and carry out work within AEPP, as well as what advantages and disadvantages with these approaches they have identified. This was done in order to let the managers discuss and analyze AEPP and the sub processes and the related problems, as well as creating consensus of what needs to be done. The interview findings were validated during the discussions as well. These discussions were quite deep and contained opinions whether the perceived problems actually are real and not misunderstandings among the managers, if the problems are possible to solve and how to solve them et cetera. The workshop proceeded after these discussions with a presentation of how SCA Tissue handles project selection which was subsequently followed with discussions of how such an approach and method could be adjusted, implemented and used at VPT AE.

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Ten managers from VPT and one from Volvo Technology participated in the first workshop, while six of these participated during the second workshop. The purpose with the second workshop was to let the responsible managers at VPT AE discuss how to design, implement and use a TMET. The focus was in particular upon identifying appropriate criterions for evaluating project proposals. A compilation of evaluation criterions recommended by the PPM literature had been distributed in advance for the managers to review and prepare themselves for the second workshop. This compilation was then analyzed together during the workshop in order to identify and choose appropriate criterions. It was also discussed how to implement and use a tool based on these criterions and potential problems that could be anticipated.

2.2. Validity and reliability of the research design

The concept of validity deals partly with whether a particular research design observes, identifies or measures what it is supposed to do (Bryman et al., 2007). While the concept of reliability refers to what degree a research design is not exposed to random influence and if the research processes can be repeated with the same results. The validity of the research is perceived as high due to the following reasons:

• The study is based on relevant PPM literature • AEPP documents received from the local AE Manager at VPT were investigated • The VPT interview guide was tested during the first interview and improved from here • The interviews were conducted with centrally involved and responsible managers,

who are considered as key people in AEPP • As the interviews were recorded and transcribed, it is likely that the interviewees

carefully considered their answers before providing them • Many empirical findings were validated during the first workshop • Some of the interviewees at VPT reviewed and corrected parts of draft reports1 • The findings are internally coherent • The descriptions are relatively thick • The reliability is considered high

The following factors have negative impact upon the validity

• Only nine interviews were conducted with VPT AE (excluding the supervisor) • Not every part of each sub system were represented • Only representatives from one local site were participating • No Sub System Directors participated in the study

1 This was done by interviewees representing Base Engine, Control Systems and Driveline. The local AE Manager performed a similar review with corresponding adjustments as well.

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Further on, the reliability is consider high since it were two researchers (Holmén, 2007) investigating multiple sources (Remenyi et al., 1998). These sources are:

• Documents and interviews • Managers from different units, responsibility areas, and levels • Workshops

Also, contributing to the reliability as well, the research was conducted in a careful and systematic manner (Bryman et al., 2007).

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3. REVIEW OF PROJECT PORTFOLIO MANAGEMENT LITERATURE In this section a review of ‘state of the art’ and ‘state of the science’ PPM literature is outlined. The focus is upon why PPM is needed, the existing research, definitions, goals of PPM, theoretical frameworks, and difficulties with PPM. Section 4 illustrates different tools and methods to use in PPM and project selection criterions.

3.1. The need for project portfolio management and the existing research

It is argued that technology development, product development and innovation in general have become increasingly important due to increasing competition. At the same time, the pace at which these activities are performed is increasing, while the complexity and risk inherent to these activities are increasing as well (Schilling, 2008; Tidd et al., 2005). In businesses characterized by high competition, technology and marketing resources are too scarce to be allocated to wrong projects (Dawidson, 2006). Firms engaged in technology and/or product development projects need to identify the right projects and the right amount of projects to spend their resources on. Hereby avoiding allocating scarce resources to wrong projects or spreading them too thinly among too many projects. PPM is an area of practice and theory which addresses this need (Blichfeldt et al., 2007; Cooper et al., 2001; Dawidson, 2006; Martino, 1995). However, it is also recognized that PPM approaches are used in other commercial areas of importance such as marketing, when implementing new work processes and production flows, when implementing new systems and processes in manufacturing and information systems, when dealing with environmental issues, and construction projects, et cetera. (Archer et al., 1999; Blichfeldt et al., 2007). Early research mainly focused on tools, methods and techniques for evaluating projects and project portfolios, often in a quite unempirical way – not considering the practical usability of the tools nor testing them in practice (Dawidson, 2006). There have been over a hundred studies published in books and articles during more than forty years discussing well over a 100 different techniques used for project evaluation and selection. These techniques have often had a mathematical nature (such as linear, dynamic and integer programming). However many of these techniques are not widely used as they are too complex, requires too much input data, they fail to account for risk and uncertainty in a satisfying manner, they fail to recognize interrelationships between projects, or are just to difficult to understand and use (Archer et al., 1999; Dawidson, 2006). During the last decades, research on PPM has become more and more explorative, now with a more complete managerial focus, studying how companies are practicing PPM and what the best practices are (Blichfeldt et al., 2007; Dawidson, 2006). However, the contributions are judged as limited when it comes to how PPM activities (e.g. decisions, preparations, discussions) should be arranged, how tools and methods should be used in these activities, as well as which participants should be involved and how they should be involved. The

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contributions are not providing a satisfying understanding of important aspects concerning the above mentioned elements (Dawidson, 2006). Rather, the contributions made are providing fragmented advices of a normative nature regarding how to set up PPM, which people to involve and how to organize them (Blichfeldt et al., 2007; Dawidson, 2006). Here, Blichfeldt et al. (2007) recognizes the work by Dawidson (2006) as one of a few “valuable exceptions”. Furthermore research on PPM still needs to be of an explorative nature, contributing to building the knowledge of how and why companies organise and carry out PPM as they do, as well as what consequences PPM has for project work (Blichfeldt et al., 2007; Dawidson, 2006). However, the existing research is seen as important achievements, building knowledge in the area and creating an understanding of essential factors for successful PPM (Dawidson, 2006). Some examples of managerial advices given by the common literature outlined by Dawidson (2006) are:

• It is critical which people are involved and how they are organised

• Organisational functions that should be involved includes sales, marketing, manufacturing and R&D

• High-level teams should be responsible

• The PPM process should be formal, and should handle all projects in their entirety

• The list of active and new projects should constantly be revised as the PPM process is

dynamic

• There exists no single, general, best way to organise the PPM work – the best way is situation specific for each company

3.2. Defining project portfolio management

A project portfolio can be said to be the set of projects under development and planned projects, at any point in time (Archer et al., 1999; Patterson et al., 2005; PDMA [website C]). The concept PPM is said to include activities such as: evaluating, screening, and prioritizing ongoing projects and existing project proposals, and in turn selecting the portfolio and allocating resources. Moreover, PPM is perceived as a dynamic and ongoing process as projects are accelerated, killed or reprioritized by reallocating resources – hereby adjusting the portfolio (Blichfeldt et al., 2007; Dawidson, 2006). It is favorable to clarify the difference between program management and PPM. Program management aims to integrate and manage a set of related projects in order to achieve benefits that would not have been possible if the projects were managed independently – hereby creating more value than the mere sum of the individual projects. The focus is upon dependencies among projects in order to improve the co-ordination and resource utilization. PPM, on the other hand, can concern projects that are connected with each other, but the projects can also be independent of each other (Dawidson, 2006).

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3.3. The three goals in project portfolio management

The literature emphasizes three different goals of PPM, but first looking upon the connection between PPM and other processes and activities facilitates the understanding for these goals. The context in which PPM are seen to exist are illustrated by EIRMA (2002) in Figure 1.

Figure 1: The context for project portfolio management (adapted from EIRMA, 2002)

Strategy development is guided by the firm’s vision and mission, while at the same time, defining a firm’s vision and mission is a strategic task (Grant, 2005). However, the realisation or implementation of strategy is first made when resources are allocated and spent. This is the connection between strategy and PPM. PPM is implementing strategy by choosing and allocating resources to different projects with guidance from business and product strategy (Dawidson, 2006). Parts of the PPM literature elaborates in detail upon the connection between stage-gate processes, project reviews and PPM and how these should be integrated (Cooper, 2006; Cooper et al., 2002a, 2002b, 2001). PPM can be said to fundamentally concern resource allocation among projects. However, in order to perform this successfully, one should recognize that PPM has three, somewhat conflicting, goals that all have to be addressed to assure maximum gain from PPM (Cooper et

al., 2001; Dawidson, 2006):

• Maximize the value of the portfolio

• Achieving a balanced portfolio

• Achieving a strong link between strategy and the portfolio Choosing the right projects with respect to the first goal, maximization of value, means selecting projects in order to maximize short and long-term profitability, return on investments and probability of success. This goal recognizes that some projects have a better cost-benefit ratio than others, but also that there can be important independencies between

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projects. Another important aspect here is that the total value of the portfolio will depend on if each project is given enough resources or if the resources are spread too thinly between to many projects. The goal of achieving a balanced portfolio concerns the need to have an appropriate balance between various important aspects. Aspects such as the amount of long-term projects compared with the amount of short-term projects, and high-risk projects versus low-risk projects. Other important aspects to balance projects concerns different technologies, products and markets, as well as different project types, from product improvements to fundamental research. To much focus on short-term projects or projects concerning specific markets would restrain the organization in the long-term or in other markets. The last goal, a strong link to strategy, addresses the need to allocate resources in alignment with the organizational strategy. Aspects to consider here are: to what degree the final project portfolio fit with strategy; how much the portfolio contributes to the realization of strategy and achieving the strategic goals; and if the project portfolio reflects the difference in priorities between different strategic objectives and guidelines. It can be noted that these goals are somewhat in conflict with each other. Maximizing the value of the portfolio might for example be done by choosing short-term low-risk projects focused upon only one or a few markets. This could possibly have negative impact upon the balance and strategic link goals. Conversely, a portfolio that has a strong link to strategy might be sacrificing the probability of success aspect, and in turn the value maximization goal (Cooper, 2006).

3.4. Towards a project portfolio management theory framework

The three goals of PPM are fundamental guidelines that need to be considered in order to successfully identifying and selecting the right projects. However, other aspects are also of importance. How the actual work routines are designed and how the work are carried out are of importance for PPM. Archer et al. (1999) has developed a framework for project portfolio selection that aims to address such aspects. The framework divides the PPM work into different stages, while at the same time allowing for flexibility when it comes to what methods and tools that are used for evaluating and selecting between projects. The framework is illustrated in Figure 2.

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Figure 2: Framework for Project Portfolio Selection (Archer et al., 1999)

The main process it self begins with pre-screening of projects and aims to reduce the number of proposals or to make sure that they have potential. Strategic guidelines help make sure the projects proposals fit with strategy. Other considerations could be a feasibility analysis and estimates needed to evaluate the projects later on. In the next stage, individual project

analysis, a more in-depth analysis of the individual projects is performed. Factors considered here might be the expected return on investment (ROI) or net present value of each project, as well as the risk and resource requirements associated with each project. During the following screening stage, projects are now evaluated against pre-defined criterions which are relevant for the analysis-output from the preceding stage. The ROI estimates could for example be compared to a minimum-ROI-criterion that has to be exceeded. The pre-screening and screening stages aim to reduce the amount of projects before the more extensive and time consuming project evaluations that takes place during the selection stage. The actual project portfolio selection begins after the screening stage. Here Archer et al. (1999) suggests a two-step procedure in order to select the right projects. First the value or benefit of each individual project should be estimated by the use of some appropriate tool or method. Appropriate with regard to the nature of the projects and the amount of them. In the second step, all project interactions, resource limitations, and other constraints should be included in an optimization of the overall portfolio. These two steps address the maximization goal stated in the previous section. The final stage, portfolio adjustment, addresses the two remaining PPM goals. Participators have to adjust for strategic resource allocation directives on project categories, as well as adjusting the portfolio in order to achieve an appropriate balance of relevant aspects. Other judgmental adjustments can be made as well. However, if the portfolio is adjusted too much, then it might be necessary go back to the selection stage as the optimization with regard to project interactions and other constraints might not be valid after these adjustments.

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3.4.1. Framework for organizing project portfolio management

Dawidson (2006) recognizes the partial validity of this framework outlined above: “[t]his

model seems to include all activities of importance for project portfolio management”. However, he criticizes the framework for assuming that all decisions are made in a linear logical process, where all projects are dealt with in the same process. His own work shows that PPM can be organized and carried out trough several (parallel) sub-processes and sub-processes of sub-processes. Furthermore, the critique also point out how the framework do not account for how different people are involved in the different stages. The purpose of Dawidson’s (2006) work was to determine aspects of importance for organizing PPM. In order to accomplish this, a framework for aspects of importance when organizing PPM was developed. It was supposed to facilitate the understanding of how PPM is carried out, structuring empirical data and the following description and analysis of the same empirical data. The meaning of ‘organizing’ underlying the framework is: “…the arranging of project

portfolio management activities (e.g. decisions, preparations, discussions) and the manner of

using tools, methods and techniques in these activities as well as the way of involving

organisational participants in the activities. Thus, organising project portfolio management is

seen here as involving three areas: procedural aspects, organisational aspects, and aspects

regarding the use of tools, methods and techniques for supporting the project portfolio

management activities.” (Dawidson, 2006; page 5) A summary of the framework is illustrated in Figure 3. It is referred to Dawidson (2006) for a deeper discussion about these aspects displayed in bullet form and why they are of importance. However, the customer aspect mainly refers to company internal customers – individuals and organizational units – with different requirements on the process and interests in the out put. The requirements different internal customers might have can typically be that the selected project portfolio supports strategic and tactical objectives or to be informed of what projects have been or probably will be selected. The information can be needed for making preparations for supporting the projects and the following implementation activities, including securing resources in order to be able to make these contributions.

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Figure 3: Summary of framework for the study of organizing project portfolio management (adapted

from Dawidson, 2006)

PROCEDURAL ASPECTS

• Customers

o Requirements on the process

• Activities

o Discussions

o Preparations

o Decisions

• Sequence of activities

• Selection process

o General processes

o Sub-processes

o Regular updates

• Review process

o General processes

o Sub-processes

o Regular updates

• Connection with company-internal

processes

o Individual project processes

o Strategy process

o Other internal processes

THE USE OF TOOLS AND METHODS

• The combination of tools and

methods

o Requirements to be fulfilled

o Adaptations of the tools and

methods

• Sequence of application to the

process

• Tools’ and methods’ use in the

process:

o Discussions

o Preparations

o Decisions

ORGANIZATIONAL ASPECTS

• Organizational setting

• Participants

o Individuals

o Group/Forums

• Connection with the process

• Type of activity connected with:

o Discussions

o Preparations

o Decisions

14

3.5. Complexities involved in and problems due to poor project portfolio management

PPM is said to be a complex managerial task due to factors such as (Dawidson, 2006; referring to Archer et al., 1996):

• Multiple and often conflicting objectives

• Difficulties of determining trade-offs among different criteria

• Qualitative and quantitative measures must sometimes be compared

• Interdependences among projects

• Multiple constraints for the project portfolio to take into consideration

• The number of possible combinations of projects can be enormous

• Projects at different stages of maturity are compared

• Usually several individuals with different perceptions involved in the decisions This can be contrasted with what is said to be some of the consequences if having no PPM or only poor PPM. According to Tidd et al. (2005) and Cooper et al. (2001), such consequences are: resources spread to thinly; negative impacts on costs and the ability to meet deadline; high failure rates; success of unimportant projects instead of important ones; projects entering the portfolio due to politics, emotions or other factors; increased time to market and weak market impact; failure to support strategy.

15

4. METHODS AND TOOLS USED IN PROJECT PORTFOLIO MANAGEMENT There are an extensive amount of different methods, tools and techniques (as well as variants and adaptations of them) developed for assisting managers with PPM (Archer et al., 1999; Cooper et al. 2001; Dawidson, 2006; Martino, 1995). There are also many approaches for categorizing these methods and tools. Schilling (2008) uses a two-dimensional categorization, from informal to highly structured methods, and from entirely qualitative to strictly quantitative methods. Martino (1995) uses a more specific grouping of methods and tools: Ranking; Economic; Decision Theory; Portfolio Optimization; Simulation; Cognitive Modelling; Cluster Analysis; and Ad hoc methods. Dawidson (2006) and Cooper et al. (2001) categorizes methods and tools according to which of the three PPM goals they are applied to address – value maximization, achieving balance, and achieving a strong link to strategy. There seems to be no consequent distinction made in the PPM literature regarding the difference between methods, tools, and techniques. However, it is suggested that techniques are more practical focused than methods, while tools seems to be more specific and might be a part of a method or a technique (Dawidson, 2006). Methods and tools discussed in the subsequent sections are currently in use within VPT AE or have been identified as particularly interesting for them, as well as relevant for the later sections in this report. However, other tools, models and theories in use and/or recommended by the literature for R&D project selection are discussed in Appendix II. These are indeed perceived as something for VPT AE to consider. It is referred to Cooper et al. (2001) and Martino (1995) for a more extensive and detailed review of methods and tools. Martino’s review has a more mathematical and programming focus; however, the methods are not more complex than that they can be used by support from ordinary spreadsheet software such as Excel. Research indicates that the best performers at PPM uses more tools per business compared to the poor performers. The poor performers relay more often on financial methods and less often on strategy methods, then top performers do. It is recommended that firms use three or more tools and methods (Cooper et al., 2001).

4.1. Methods and tools for value maximization

Common for the value maximization tools are that they produce rank-ordered list of projects. However, a large difficulty is the amount of data required as input and the often low validity of the data, and in turn, the output from the tools – particularly from the quantitative-financial ones (Cooper et al., 2001). This is one reason for why the financial models have been criticised. On the other hand, Boer (2004) state that it is not the financial models that should be criticised but rather the “stupidity” of using them incorrectly. In his book he argues that financial models in the form of net present value and option analysis (real options) should be used for R&D strategy and project selection (see Appendix.II.1.). His book encloses a CD-ROM to assist the user when applying financial models to project selection.

16

4.1.1. Scoring models

Scoring models belongs to the most recommended tools for value maximization and PPM in general (Cooper, 2006; Cooper et al., 2001; Davis, 2001; EIRMA, 2002). They consist of various main criterions and sub criterions which are used for evaluating projects along different aspects. Each project is rated on each main and sub criterion, wherefrom a total score can be calculated for each project, which in turn can be used for ranking the projects. The criterions should be based on known success factors that can separate winners from losers. Or differently stated; the criterions should be predictors of a future project success or failure. If strategic criterions are used, then the scoring model help achieve alignment of the project portfolio with strategy as well. Besides providing a ranking list, each project score can also be compared to a predefined minimum score. Whereupon the project is dismissed if the total project score is lower than the limit, or has a too low rating on one or more specific criterions that have been judge as especially important to have a high rating (Cooper et al., 2001). Figure 4 illustrates main criterions recommenced for R&D projects (Cooper, 2006; Cooper et al., 2001) and Product development projects (Cooper et al., 2001).

Research & Development Product Development

Business strategy fit Strategic alignment and importance

Strategic Leverage Product and competitive advantage

Probability of technical success Market attractiveness

Probability of commercial success Leverage core competencies

Reward Technical feasibility

Financial reward

Figure 4: Project evaluation and selection criterions for R&D and product development (Cooper, 2006;

Cooper et al., 2001)

Anchored rating scale phrases

An especially important element of scoring models is the rating scales used for the rating projects along the different criterions. These rating scales usually consist of four or five steps with numbers representing the different ratings, for example 0, 4, 7, 10 or 1, 2, 3, 4, 5. However, it is generally recommended that that the rating scales should be complemented with corresponding anchored scale phrases2. This means that each rating number in advance should correspond to an anchored scale phrase, which is supposed to capture what it takes for a project to be given that rating on that criterion. If an anchored scale phrase is the most accurately description of a project compared to the other phrases that belongs to that criterion, then the project is rated with that phrase’s corresponding rating number. The anchored scale phrases provide a standardized basis for how multiple participators can rate projects easily together. As such, it is a simple and robust basis for obtaining multiple ratings easily and reliably from multiple persons that make evaluations at different times.

2 These kinds of rating scales are also called Likert scales (Bryman et al, 2007).

17

Anchored scale phrases also increase the structuring of the exercise (Cooper, 2006; Cooper et

al., 2001; Davis et al., 2001; EIRMA, 2002). Figure 5 illustrates sub criterions with anchored scale phrases for the main criterion ‘Probability of technical success’ (Cooper et al., 2001). The following five bullets are recommended anchored phrases to the sub criterion ‘Competences and skills’, which is another recommended alternative sub criterion for the ‘Probability of technical success’ main criterion (Davis et al., 2001):

1. This has never been done before 2. This is new to us; but it is not new to the world 3. This is not new to us; but it is not one of our present competences 4. It is a good fit with our core competencies; but we have not done a project like this 5. We are experts and have done this before

Anchored scale phrases

Criterions 0 4 7 10

Size of technical gap

Large gulf

between current

practice and

objective; must

invent new science

“Order of

magnitude”

change proposed

Step change short

of “order of

magnitude”

Incremental

improvement;

more engineering

focus

Program complexity

Difficult to define;

many hurdles

Easy to define;

many hurdles

A challenge; but

do-able Straight-forward

Technology skill base

Technology new

to the company

Some R&D

experience but

probably

insufficient

Selectively

practiced in

company

Widely Practiced

in company

Availability of people and resources

No appropriate

people / facilities;

must hire / build

Acknowledged

shortage in key

areas

Resources are

available; but in

demand; must

plan in advance

People / Facilities

immediately

available

Figure 5: Anchored scale phrases for sub criterions for the Probability of technical success criterion

(adapted from Cooper et al., 2001)

Weightings

It is often recommended to weight the main and sub criterions in order to let their relative importance have impact on the project scores and the final ranking list (Brenner, 1994; Cooper et al., 2001; Davis et al., 2001; EIRMA, 2002). The determination of weights can be done with help of the Delphi method, simple opinion polls, or trough the use of relevant research results (Cooper et al., 2001). Brenner (1994) explains a step by step procedure for developing a scoring model, he recommends using pairwise comparisons (see section 4.1.2.) for determining the weightings. However, Brenner’s pairwise comparisons tool uses a five degree rating scale for conducting the pairwise comparisons. This weighting procedure also

18

complements the pairwise tool afterwards with discussions of whether the output seems plausible or need adjustment before the weightings are settled. Cooper et al. (2001) discusses how different set of weightings can be used for different set of project types, such as sustaining projects, new business projects and must-do projects. However it is recommended to not compare project scores that have been received trough the use of different set of weightings, as different set of weightings means different scoring models which in turn imply less comparability. Benefits from using scoring models

Scoring models have several strengths and there are many benefits with using one (Cooper et

al., 2001). Scoring models addresses multiple goals, as they contribute to both maximizing the value of the project portfolio and achieving a strong link and alignment between strategy and the project portfolio. Also, complex decisions of prioritization are reduced to answering a manageable number of specific questions. A major strength is the process itself that people go through as they discuss ratings on different criterions and different rankings on projects since this might generate:

• learning • consensus

And reveal or identify:

• strengths and weaknesses of project proposals • different opinions • critical areas that have been ignored • critical information gaps • actions or improvements that needs to be undertaken

Scoring models can be compared to a meeting agenda, they are a good foundation to facilitate systematic, constructive and comprehensive discussions; more like a decision support tool than a decision tool per se. There will usually be important aspects and characteristics of various projects not captured by the specific tool design that need to be considered before selecting the project portfolio (Cooper et al., 2001). Managerial concerns

Managerial concerns regarding the use of scoring models include the following (Cooper et al., 2001). First, the result from scoring models should not automatically be believed. Sometimes people tend to exaggerate the precision that scoring models have, creating an imaginary precision. Second, criterions sometimes overlap or correlate with each other, in which case projects that are scoring high on specific criterions will automatically score high on other criterions as well. Third, scoring models do not assure that the resulting list achieves the highest possible scores for a given total R&D expenditure, if not explicitly accounted for. For example, large projects tend to score higher then smaller projects. But if the ranking list would consists of project scores divided by R&D costs (score/cost), then smaller projects might enter the project portfolio instead of larger ones due to better resource efficiency.

19

Furthermore, it have also been discovered that scoring models tend to produce ranking lists where many of the individual project scores have values that are very close to the mean value of the total set – many of the project scores clusters around the same score that is (Cooper et

al., 2001; EIRMA, 2002). One way to solve this could be to, instead of rating projects individually on each criterion, rank-order the entire set of projects on each criterion – and then distribute ratings with respect to this ranking order. For example, if project A, B and C were rank-ordered in the following way on a specific criterion – C, A, B – then C might be given the rating 3, A rating 2, and B rating 1, on that criterion (Cooper et al., 2001).

4.1.2. Pairwise comparisons and analytical hierarchy procedures

Pairwise comparisons (PWC) are a method where all individual project proposals are compared pairwise with every other project proposal (Martino, 1995). If project B is assessed as superior to project A, then project B are given one point. Applying this method to a set of N projects will demand for N (N – 1) / 2 comparisons. This has also been referred to as global comparisons. Figure 6 shows a PWC matrix which can be realized with Excel for example. The left hand table indicates that Project A is superior to Project D and E, whereas Project C is superior to all other projects, while Project E is inferior to all of the other. The comparisons points are entered into the right hand matrix; whereupon the points are summed row-wise in order to produce a ranking list of the project set.

Figure 6: Project comparisons (to the left) and a corresponding pairwise comparisons matrix

Another possibility is to also assess “how much better” a specific project proposal is compared to another proposal with the use of an anchored scale (slightly better, much better, very much better) with corresponding points (1, 2, 3) (Brenner, 1994; Martino, 1995). Yet another, simplified and faster PWC method is to identify the best and the worst project which gets 100 points and 0 points respectively. Each other project is then compared to these two reference projects and receives a score between 0 and 100 which reflects their suitability relatively to the two reference projects (Martino, 1995). A more advanced version of PWC is the Analytical Hierarchy Procedure (AHP). In this method, each project is pairwised compared to each other project on a number of weighted criterions (see Figure 7). One PWC matrix is used for each criterion. All or some of the criterions can in turn have sub criterions with their own PWC matrixes, where that output are

0 0 0 0 0 E

1 1 0 0 0 D

4 1 1 1 1 C

3 1 1 0 1 B

2 1 1 0 0 A

Count E D C B A Projects

E >

E D >

A, B, D, E C >

A, D, E B >

D, E A >

Projects

20

used as input to the matrix one level above. The points from each matrix are weighted and added in order to produce a ranking list of the projects (Martino, 1995).

Figure 7: Three AHP matrixes for three different criterions and weights

4.1.3. Project evaluation and selection criterions

Several authors are recommending firms engaged in R&D and product development project selection activities to use project selection criterions in various ways. From guidelines and questions to answer during screening activities to full size scoring model tools to be used during the portfolio selection. However, common to these authors, where perhaps Martino (1995) is a differential example, is that they provide very limited, if any at all, discussions upon or justifications to why specific criterions are more appropriate than others. Also, what a specific criterion actually means or refers to are often omitted. It seems as some kind of education in strategic management of technology and innovation (or equivalent) or extensive hands-on experience in these matters is presumed of the reader. However, when there are anchored scale phrases accompanying the criterions than these usually provide an indirect but quite sufficient explanation of what the criterions are meant to evaluate. The criterions for R&D project selection recommended by Cooper and colleagues (Cooper, 2006; Cooper et al., 2001) are justified by declaring them as elements of one of the best scoring models they had seen during their research, combined with validations of the model’s reliability from the company who developed used it. On the other hand, the criterions recommended for product development projects are said to be based on elements taken from several leading firms, combined with extensive research into what the critical success factors for new products are (Cooper et al., 2001) (see Figure 4). The criterions, with corresponding anchored scale phrases, recommended by Davis et al. (2001) are output from an IRI3 project, developing a scoring model together with member companies that could be applied to most industrial R&D situations; or at least a platform that easily could be modified by individual companies. Sheasley (2000) seems to be

3 Industrial Research Institute; members including BP, GE, GM, IBM, Intel, NASA, Nokia, Toyota; http://www.iriinc.org/

Project Rankings

Probability of technical success

Strategic fit Probability of commercial success

Weight 0.5 Weight 0.3 Weight 0.2

0 0 0 0 0 E

1 1 0 0 0 D

4 1 1 1 1 C

3 1 1 0 1 B

2 1 1 0 0 A

Count

EDCBAProject

0 0 0 0 0 E

1 1 0 0 0 D

4 1 1 1 1 C

3 1 1 0 1 B

2 1 1 0 0 A

Count

EDCBAProject

0 0 0 0 0 E

1 1 0 0 0 D

4 1 1 1 1 C

3 1 1 0 1 B

2 1 1 0 0 A

Count

EDCBAProject

21

recommending his suggested criterions from experience as a technical manager in the speciality-material industry. A compilation of R&D project selection and PPM selection criterions found in the literature can be found in Appendix III. The main and sub criterions recommended by different authors have been organized into groups, labelled with the main criterions for R&D project selection recommended by Cooper (2006). A reduced version of this compilation is illustrated in Figure 8 and Figure 9. The difference is that Figure 8 and Figure 9 do not show which authors that have recommended what criterions. Also, criterions that have been judged as equivalent have been removed to some extent. The criterions listed should be interpreted on the basis of what group label they belong to. However, this grouping of the main and sub criterions found in the literature have been done on the basis of the author’s own judgment. Therefore, a few criterions have been placed in more than one group, mainly the two probability of success groups; while a few criterions belongs to an group with a title that might seem contradictive with respect to the criteria (for example, cost belonging to the reward group as cost have negative impact upon the reward). Regarding recommendations for screening questions designed for product development projects, it is referred to Schilling (2008). Brenner (1994) discusses a step by step approach for managers to use when developing their own criterions and weighting them according to their importance. The approach draws upon the pairwise comparison tool (section 4.1.2.) for selecting the right criterions according to their importance (ranking criterions instead of projects). The first step is to generate criterions in workshops with help from questions used to activate and energize the discussions:

• What are the factors that have made your projects successful? • What are the characteristics of the projects that have helped your career? • What criteria do you use when choosing a project? • What makes a project good? • What do you try to avoid in a project? • When you think about a project, what characteristics do you consider? • Where does your organization tend to be successful?

Recall from section 4.1.1. that criterions should be predictors of future project success or failure.

Business Strategy Fit Strategic Benefits/Leverage

• Strategy fit

• Strategy impact (importance)

• Resource availability

• Drawing upon core competencies

• Reducing a gap or weakness in the

business plan or strategic position

• Attractive for a Real Options

approach

• Targeting specific contracts

• Proprietary position (intellectual

property matters)

• Platform for growth

• Durability (technical and marketing)

• Potential for future improvements

of the technology

• Synergy with corporate units

• Impact on other business activities

Figure 8: Strategic evaluation and selection criterions

22

Probability of Technical Success

• Technical Gap

• Technical or Project Complexity

• Technological skill base

• Availability of people and facilities

• Existence of a product champion

• Degree of internal commitment

• Degree of internal competition for

resources

• Source of project proposal

• Proprietary position

• Access to external technology

• Manufacturing capability

• Soundness of ideas

• Level of understanding of underlying

principles

• Magnitude of potential advance in

performance

• Understanding of structure and/or

property relationships

• Understanding of correlation of

properties and benefits

• Flexibility of technical design

• Number of benefits that could be

enhanced

Probability of Commercial Success

• Market need / maturity / size / share

• Sales volume

• Commercial applications

development skills

• Distribution channels

• Ability to exploit Market / Brand /

Image strengths

• Product life cycle

• Raw materials supply

• Regulatory and political impact

• Environment, health, and safety

aspects and regulations

• Importance of benefits in cited

markets

• Understanding of correlation of

properties and benefits

• Strength of differentiation

performance

• Understanding of market trends /

drivers / value chain

• Commercial assumptions

• Market participants and structure

• Competitive intensity

• Customer strengths (business to

business)

Reward

• Contribution to profitability, cash

flow, revenue

• Return on investment

• Payback period

• Cost-benefit

• Development time

• Development cost

• Time to commercial start-up

• Synergies with ongoing projects or

other project proposals

• Competitive advantage

• Growth opportunity

• Knowledge accumulation potential

Figure 9: Probability of technical and commercial success and reward evaluation and selection criterions

23

4.2. Methods and tools for achieving a balanced portfolio

One of the three PPM goals is to achieve a balanced project portfolio. Tools and methods used for balancing project portfolios include bubble charts, pie charts, and histograms. These are all producing visualisations used for over viewing the project portfolio and potential projects not yet included, as well as initiating discussions whether what constitutes the right project portfolio with regard to important aspects to balance (Cooper et al., 2001; Roussel et al., 1991).

4.2.1. Bubble charts

Bubble charts, or bubble diagrams, basically consists of two axes representing two dimensions (or parameters) of project characteristics that have been judged as important for balancing the project portfolio and selecting projects proposals. The most popular dimension combination is risk and reward, where reward represents anticipated benefits from projects, whereas risk represent probability of technical and/or commercial success (Cooper et al., 2001). The projects are displayed along the two axes as circles – bubbles that is – depending on their assessed characteristics with respect to the axes-dimensions – how much risk and reward that is associated with each project (see Figure 10). The exact design of these circles or bubbles can be varied to a very large extent in order to display particular information for each project proposal. For example, the size of the bubble could represent the project cost, project risk, development time, time to market, et cetera. Similarly, the colour and the pattern inside the circle edge can be used to display, besides the already mentioned variables, technology type, product category, market or segment addressed, market newness, et cetera.

Figure 10: Bubble chart with risk and reward dimensions

Risk

Reward

100%

100%

0%

0% (high risk)

24

There are a large amount of dimension pairs and individual dimensions that have been declared as more or less suitable for bubble charts. The following list provides examples of dimensions to balance (Cooper et al., 2001; Roussel et al., 1991):

• Fit with strategy and/or strategic importance • Innovativeness • Durability of competitive advantage • Potential reward • Competitive impact of technologies (base, key, pacing, embryonic) (see Appendix II) • Probability of success / risk • Cost • Time to completion (long-term / short-term) • Markets and markets segments • Product categories / lines • Project types (new technology, technology improvements/extensions, cost reductions,

fundamental research, platforms) Examples of popular dimension combinations are illustrated Figure 11.

Popular bubble chart dimension combinations

Risk Reward

Technical newness

(Known to the company)

(New to the company)

(New to the world)

Market newness

(Known to the company)

(New to the company)

(New to the world)

Ease to do Attractiveness

Strength Attractiveness

Cost Timing

Strategic focus or fit Benefit

Cost Benefit

Technological competitive

position or strength Technological maturity

Figure 11: Example of bubble chart dimension combinations (Cooper et al., 2001)

4.2.2. Pie charts

Pie charts are ordinary statistical circle diagrams used for displaying different category percentages (see Figure 12). They are suitable for visualising the percentages of different project types that constitute the project portfolio, usually as percentages of the portfolio budget. Such project categories could be: fundamental research; platform programs; new product developments; updates and extensions; and maintenance. Other categories to balance could be different markets or customer types which the projects are aimed at (Cooper et al., 2001).

25

Figure 12: Pie chart displaying the resource balance between different project types

4.3. Methods and tools for achieving a strong link between strategy and the portfolio

Tools for aligning the project portfolio with strategy includes roadmaps, sub portfolios, and scoring models that build in strategic criterions (Cooper et al., 2001).

4.3.1. Roadmaps

Roadmaps can be said to illustrate a management group’s view of how to get where they want to go or how to achieve desired objectives – a strategy planning and implementation tool. Product roadmaps define products and product launches in a timeline, and also how product lines will evolve and future generations. Technology roadmaps can be derived from product roadmaps and show how to get there. That is, illustrating technologies, technology projects and technological competences that are needed for implementing the product plans in the product roadmaps. Selecting projects with roadmap support is one approach for increasing the fit between strategy and the project portfolio (Cooper et al., 2001). For more on roadmaps and technology roadmaps see for example Albright et al. (2003), Faijerson et al. (2008), McMillan (2003), Phaal et al. (2003), and Whalen (2007).

4.3.2. Sub project portfolios

Sub project portfolios are basically a formal split of the project portfolio budget into sub budgets whose proportions are decided by reviewing the business, product or technology strategy. In this way, the project portfolio is partly aligned with strategy as the resource allocation to different areas is predetermined with respect to strategy. Relevant dimensions to consider for a sub project portfolio split are (Cooper et al., 2001):

26

Strategic goals – projects might aim at different strategic goals Product lines – projects might aim at different product lines Market segments – projects might aim at different markets Technology types – projects might draw upon different technologies; technologies might be in different states, e.g. base, key pacing, and embryonic (see Appendix II.3.). Project types – new product development, platforms, fundamental research, improvements. Technology newness versus market newness – technology known to the company, new to the company or new to the world; versus market known to the company, new to the company or new to the world Geography – projects might aim for different geographic markets. Pie charts and bubble charts can be effective tools for visualising how resources are or should be distributed between the sub portfolios (see section 4.2.2.).

27

5. INVESTIGATION OF SCA TISSUE AND VOLVO AERO In this chapter follows a description of, for VPT AE, relevant methods and learning’s from investigations of other appropriate firms.

5.1. SCA Tissue’s project selection process and methods

SCA is a Swedish corporation with 50 000 employees around the world. They have production in about 40 countries and operations and sales in 90 countries. SCA is divided into four business areas: Personal Care; Tissue; Packaging; and Forest Products. At SCA Tissue, the Category department – product development and marketing – was previously, within the department, divided into units with focus on consumers and Away From Home (AFH) customers (organizations) respectively. Recently, integration of these two parts has been initiated. The following description of how SCA Tissue handles project selection challenges is an approach that was just to be implemented shortly after the interviews were held. However, the approach draws on the best practises from the previous consumer and AFH approaches. The approach have also been presented and anchored internally. When SCA Tissue was to develop their new project proposal evaluation and prioritization method, the following goals or requirements for the method was determined:

• Simple process with enough flexibility • Objective project screening filters • Well known parameters (criterions) • Support and encourage creativity and innovation • Create an appropriate environment and attitudes • Insight driven (understanding the customer and the technology)

The requirements are more or less self explaining. However, the requirement of well know parameters captures the desire that the method should be based on criterions and concepts that was already known and understood by the ones that were going to be involved in the project selection activities. The project selection method is in fact a project selection process, fundamentally very similar to the project selection process proposed by Archer et al. (1999) which was discussed in section 3.4. SCA Tissue themselves perceive their method as a Funnel Process with five phases. The phases in order are:

1. Opportunity Phase, 2. Idea Phase, 3. Concept and Business Case Development; 4. Product Development Project and Product Launch Project; 5. Market Development / Product Launch.

Moreover, there are four filters which separate the five phases by screening and dismissing ideas and project proposals before the next phases is entered. It is perceived as a Funnel

28

Process as the amount of opportunities identified in the first phase responds to a much larger amount than the products that are entering the markets during and after phase five. This selection process is running in parallel with the strategy process and there is a tight and extensive communication between these two processes. The participants in both of the processes needs to be aware of what developments, advancements, discoveries, decisions etc. have been made in the other process. An example of this is that the filters (based on criterions) between the phases changes to some extent if the strategy changes. Also the weightings of different criterions are changed in order to align the project selection with the new business strategy and priorities. Opportunity Phase

The first phase, the opportunity phase, involves finding new opportunities by external analysis and gathering information about customers and markets, while letting strategy point out the direction and where to focus. This creates insights about customers and consumers, technology, and competitors. The phase ends with an insight and opportunity filter which screens the insights and opportunities that have been identified against pre-defined criterions or evaluation dimensions. These are:

• Strategic fit and other strategic drivers • Market potential – size and growth potential

The insights and opportunities that are perceived as most appropriate and having the highest potential with respect to these criterions enters the second phase, while the rest are placed in an idea bank. Idea Phase

Insights and opportunities that enters the second phase, the idea phase, are used as seeds from which ideas about solutions or marketing offerings are created. These ideas are categorized according to from which source they were generated. The first source is formal idea generation workshops within the Category units. These workshops resemble brainstorm sessions. Another source is internal bottom-up ideas from Category and the rest of the firm. Belonging to the third category are ideas which can be described as cost saving activities for existing products. The forth category consist of externally generated ideas from customers, suppliers, inventors and others. The end filter for idea screening is based on the same criterions as the opportunity filter. However, as the ideas are more developed and extensive, compared to the insights and opportunities, more criterions are added in order to structure and evaluate this additional information and knowledge. The idea filter consists of the following criterions:

• Strategic fit and other strategic drivers • Market potential – size and growth potential • Customer fit and attractiveness • Implementation complexity (done before or new to the company, need new resources

and capabilities?)

29

Concept and Business Case Development

After the idea phase, the last and most extensive phase before product development follows. Here, concepts and business cases are developed. A concept includes detailed descriptions about product and production prototypes. Research has been made regarding what materials to use as well as what production technology to use. Appropriate distribution channels are also described and market implementation tactics have been drawn up, including who the customer are, how to reach them and what to offer them. A business case has the same content as a concept, but estimations of investments costs and profits as well as time to market have also been performed. The end filter for this phase consists of a complete scoring model which will be described next.

5.1.1. SCA Tissue’s scoring model

The scoring model that is used by the Category units evaluates and rank-orders the business cases (the project proposals) developed during the third funnel phase. The model is mainly used as a discussion foundation to direct the discussions in the forums where decisions are made and to assure that the right factors and aspects are addressed and discussed. The benefits, according to SCA Tissue, are that it becomes obvious during the discussions that there exist weaknesses and gaps within the different project proposals that are discussed. It becomes hard to hide the weaknesses and gaps. Furthermore, this approach also helps avoiding personal liking of projects, pet projects and even opinions from family members. The main criterions of the scoring model are divided into two categories – reward and risk – and are illustrated in Figure 13. Some of the criterions were used earlier in the first and second phase. The three first criterions in the reward category are semantically the same as in the idea filter. However, the aspects meant to be captured by the Implementation complexity criteria within the idea filter is now captured more or less by all the risk category criterions. All the main criterions have corresponding sub criterions as indicated in Figure 13, however, SCA Tissue did not reveal all of these sub criterions. The main criterions are also weighted in order to account for their varying importance and what the strategic directives and focus implies at the time the scoring model is used.

SSCCAA TTiissssuuee’’ss ssccoorriinngg mmooddeell ccrriitteerriioonnss

RREEWWAARRDD

• Strategic alignment and importance

• Fit; Importance; Impact

• Market attractiveness • Size and growth; Margin; Competitive situation; Patentability

• Customer attractiveness/fit

• Contribution

• Spillover effects (to other product areas)

RRIISSKK

• Commercial risk

• Technical risk

• Development, technology and marketing experience

• Project cost, investment and time to market

Figure 13: SCA Tissue's scoring model criterions, divided into risk and reward categories

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The sub criterions are rated on a four degree scale – were the ratings can be 0, 4, 7 and 10 – with corresponding anchored scale phrases (see section 4.1.1.). The ratings of main criterions are not just the average rating of corresponding sub criterions. Main criterions are given their own ratings based on new assessments and evaluations. These ratings are of course significantly influenced by the discussions about and ratings on their sub criterions, but these main ratings also consider other aspects and knowledge that was not captured by the sub criterions. When all the main criterions have been rated for all project proposals, the scores for each project on the reward and risk category respectively are calculated. The two scores for each project are then transformed into percentages of the maximum score that could be obtained in each of the reward and risk categories. These percentages are used to plot each project in a Risk-Reward bubble chart as illustrated in Figure 14.

Figure 14: Adaptation of SCA Tissue's bubble chart

5.1.2. Using the scoring model and the result

It is responsible people from the Category department’s sub departments – product development, consumer marketing, and marketing towards organizations – who use the scoring model together in cross-functional groups. However, four different groups or constellations are responsible for one of the four different product categories within Category. Each product category group handles up to 15 project proposals with the scoring model. It should be noted that the project scores are not formally compared between the product categories, for two reasons. First, it is believed that different groups would score the same set of projects differently, partly because difference in rating scale treatment. Second, there is a fear that such a comparisons between product categories would increase the final scores as there are various individual benefits from having projects from one owns product category launched. For example, being the originator of a large project or being a project leader (or involved in some other way) for a large project might benefit the individual carrier or provide other benefits.

Risk

Reward

100%

100%

0%

0% (high risk)

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Instead, the people that were involved when applying the scoring model from the four product categories gets to present and motivate their best project proposals for a higher-level forum of managers that will decide how resources will be allocated between product categories and to which projects. The foundation that is created from the discussions when using the scoring model is now an advantage when projects must be justified to resource providers. As the participators in the scoring activities have systematically discussed important aspects of the project proposals, identified strengths and weakness and also how to exploit and avoid these, they now have a proper foundation to lean on when arguing for their project proposals. Of course, the other groups will also be able to provide well-worked out, thought trough arguments. With respect to this, one can still expect hard competition for the resources, but the probability that the most appropriate projects are selected should be increased. Regarding the bubble charts that are constructed from the project scorings, these are used like executive summaries which make it easier to explain and illustrate why one have chosen or would like to choose some projects instead of others – why they are more appropriate.

5.2. Learning from Volvo Aero Corporation

Volvo Aero Corporation (VAC) is a Swedish corporation with about 3500 employees around the world. VAC has offices in Norway, the USA and their headquarters are in Sweden. In total they have five main customers such as Rolls-Royce, Pratt & Whitney, and General Electric. VAC’s business area is to develop and manufacture high-technology components for aircraft, rocket and gas turbine engines, in cooperation with the world's leading engine manufacturers [website D].

5.2.1. The current project selection approach at VAC

VAC faces similar kinds of problems as VPT. VAC’s approach is mainly built upon processes mainly involving discussions concerning ideas and project proposals. The company has one large process, which during the spring includes operational planning and strategy processes which results in a business plan, strategic prioritizes, a product plan, and a development plan. In the autumn these plans are broken down to a unit level.

5.2.2. Previous project selection methods and tools used within VAC

Some units at VAC have experience of using various kinds of tools for project generation, evaluation and selection. During the 90ies, they applied tools taken from literature about R&D strategy, PPM and project selection (Roussel, 1991). These tools included, among other, bubble charts (e.g. technology newness and market newness axes) and technology categorization (see Appendix II.3.). The tools contributed with value as they brought new perspectives, analysis approaches and created a good overview. Basically, the tools took their R&D planning and selection activities and discussions to a higher level. The tools helped them during the first couple of years, analysing their current position and where they needed to go. However, the output from and conclusions and insights generated

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with help from the tools did not change much after these first years and therefore did not contribute with enough value compared to the time and efforts needed for using the tools. Two reasons for why the tools demanded too much time have been identified. First, the tools were based on and included relatively unfamiliar concepts and definitions which meanings had to be relearned each year as they were not used frequently enough. Second, the tools were applied from scratch each year instead of updating the output from the last year. Later on during the current decade, some units at VAC used Quality Function Deployment (QFD) as a method to identify important technology areas to work with and in turn generating and selecting projects. QFD is a method that generally is used in order to translate customer requirements into development needs, and encourages communication between engineering, production and marketing (Tidd et al., 2005). The original method is comprehensive; hence VAC designed their own QFD-method4 on the basis of their strategic process. The method was based on three different perspectives; Probability of success, Importance, and Bearing. Probability of success concerned, among other, short-term and long-term aspects. Importance involved aspects like potential reward and turnover. Bearing concerned whether the projects and their technology deliverables would function within the products and how long their usefulness would last. These three aspects were assessed and compared together by a cross-functional group consisting of people from the market and engineering departments. The method was based on that the members of the cross-functional group had ideas and a lot of knowledge in the area. VAC used the method in order to:

• To make a useful ranking to reach decisions • To get a better understanding of the market • To make it easier to describe how the decisions were made • Get a higher motivation to start a project

With this tool, the cross-functional group could identify which products their efforts should focus upon and which technologies they had potential to leverage in order to make contributions. The products and technologies to work with were visualized in histograms in order to create an overview and facilitate discussions. After having identified which technologies to work with in order to contribute to specific products, then they started to develop project proposals for achieving the objectives. VAC identified a couple of issues and drawbacks with this tool and approach. First, the procedure took a lot of time, as it usually were about ten people involved, spending 8 meetings, 2 hours long each. The second drawback was that some times the tool only confirmed what they already knew. This was mentioned as reasons for why they stopped using the tool. To conclude, the tool was similar to a scoring model as different evaluation criterions were used for identifying and ranking products, areas and technologies to work with. This method developed by VAC involved a significantly more complex project rating procedure as well as a more complex algorithm for producing the ranking list, compared to SCA Tissue’s approach

4 This method was specifically designed by a smaller unit at VAC, including Ulf Högman

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and what the current PPM literature recommends. However, the main difference is that VAC used this “scoring model” for identifying and selecting areas to work with (which technologies for which markets), and when this was done, starting to develop project proposals.

5.3. Commenting the SCA Tissue and VAC cases

SCA Tissue’s project selection process appears to be thoroughly thought trough. They begin with generating as much “insights and opportunities” as possible. These elements are thereafter systematically reduced in number while simultaneously gradually evolving them into entire product and market development proposals. These activities are guided by business strategy from beginning to the end. Two things are particularly clear. First, this approach has much similarity with existing literature recommendations, particularly with what have been written by Archer et al. (1999) and Cooper et al. (2001). Secondly, the approach appears to be simple, efficient and flexible. It does not introduce complex structures or procedures, nor does it introduce time demanding efforts not generally associated with new product development planning activities. It is believable that SCA Tissue’s project proposals are of a more, from each other, independent nature as they in the end are complete product development projects. For VPT AE on the other hand (as will be shown later), each of their project proposals are just one of many other proposals which aim to create desired features and properties in one or several future products. This is likely one factor, among others (e.g. product complexity), making such a simple project selection approach insufficient for VPT AE. VAC’s approach on the other hand, here the empirical data is unfortunately insufficient for making a satisfying description of either their current or previous approaches. However, they have previously benefited from the use of various project selection tools, but these were not implemented in a sustainable manner. There are some particularly relevant learnings for VPT AE from these cases. It is advantageous if the concepts and criterions making up methods and tools to be used are familiar to and understood by the users. For SCA Tissue, this was a requirement from the beginning. For VAC, the lack of such understanding was one factor appearing to have contributed to the abandoning of one or more tools. Also, new tools can introduce new and useful perspectives and way of thinking, but they should be designed and used with thoughtful considerations so that they supply more value than what they cost to use. Being recommended by the literature is not enough. Moreover, SCA Tissue, have found an effective way to use guidelines and screening criterions along their project selection process. This could show to be very useful in VPT AE as well. Regarding the use of their scoring model, it is quite clear that the real benefit is the structured and extensive discussion created with this tool. It is not the ranking lists that are the primary benefits as these are not even used during the final resource allocation.

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6. THE PPM APPROACH AT VOLVO POWERTRAIN AE VPT AE has organized their project selection activities with starting point in their global Advanced Engineering Planning Process (AEPP) – this is the heart of their project portfolio management (PPM) approach. However, to fully understand how project selection is carried out, a brief overview of their global organization structure is beneficial. Thereafter, a description of AEPP is outlined, followed by deeper description of how different units are operating within the scope for AEPP.

6.1. Volvo Powertrain’s product development organization structure

VPT’s main sites are located in Sweden, France and USA – these will be referred to as local sites. On the highest level, the organization structure can be described as a geographic/functional matrix organisation, with one column for each local site, while the rows consist of functions named Product Development (PD), Purchasing, and Manufacturing, respectively. A number of support functions are placed under the CEO. This means that the PD function is global. However, PD in turn is structurally organized as a geographic/technology-area matrix organisation. Local PD functions at each local site constitute the columns while sub systems represent the rows – the different technology-areas. A number of support functions are placed under the head of global product development. There are five sub systems, one for each technology area. These technology areas are Base Engine, Combustion, Control Systems, Driveline, and Hybrid Technology. Each sub system has a Sub System Director who manages the global sub system. Each sub system is responsible for technology development activities and belonging support activities. The larger part of engineers within the global PD organization belongs to a sub system, and is located on one of the three local sites. The product development activities at each local PD site is organized trough three departments which can be thought of as responsible for different phases during the ordinary product development activities. These are Concept (which are responsible for the first phases), Engine Programs, and Complete Powertrain and Driveline Program. These three departments are, obviously, responsible for whole concepts and development programs, but their product development activities depends on ordering large amounts of work from the various departments within the sub systems. Or differently stated, the engineers within the sub systems participates in and delivers to the concept and program projects and activities. The three local PD managers have several staff below them, including Advanced Engineering (AE). One AE Manager at each site is responsible for the local AE activities and these three managers coordinate and drive the global AEPP.

6.2. Volvo Powertrain’s Advanced Engineering Planning Process

In order to identify important technology development activities that needs to be carried out for various reasons – in the end, due to requirements to increase or at least sustain the competitiveness of the Volvo Group – a process called Advanced Engineering Planning

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Process (AEPP) have been designed and implemented. This process coordinates the AE-project selection activities. AEPP and its main activities are illustrated in Figure 15. The figure is rather schematic and the stages with corresponding activities represented by yellow icons are in reality more smoothed out and overlapping than what it appears from Figure 15. However, the figure illustrates in what order different activities are meant to be completed as the later activities uses the output from the preceding activities as input.

Figure 15: VPT's Advanced Engineering Planning Process

AEPP starts with quarter one, Q1, and ends with quarter four, Q4. The process takes one year to complete and coincide with regular years. AE Input can be categorized as follows:

• VPT Business Plan

• Long-term product plan and strategy

• Authority regulations and incentives

• Future market needs – Product Feature Plan

• Technology – Research, Suppliers, Competitors

Input

Q1

Q2 Q3

Q4 Roadmap Level 1

10 year project plan

Roadmap Level 2 Technology Scenario

AE Project Plans

Cost estimates

Global AE plan

Roadmaps Roadmaps Roadmaps Level 3&4

GAEC

AEWS

AE Input

AE Sub Programs

Budget

frames

AE Plan Review 2

AE Plan Review 1

…. year n

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6.2.1. Roadmaps development

Technology roadmaps are the central planning method used for AEPP and roadmaps on four different levels are created. The creation of roadmaps is the dominating activities during the first half of AEPP. Roadmap level 1 (RM1) is created by Concept. RM1 is a 10 year plan which is based on VPT’s long-term product plan and covers all VPT customers; it shows when new product development activities will begin and when they should be finished. RM1 displays start and end dates of the following stages of different new product development programs: Pre Study, Concept Study, and remaining product development. It also indicates start dates of AE activities which precede the product development as well as the start of production that follows. In this way, RM1 indicate when new technology developments need to be delivered. The development of RM1, despite what Figure 15 indicates, is updated continuously and new versions are accessible by everyone involved in AEPP trough the intranet. However, the official version for a particular year is released and announced during the later part of Q1 as indicated by Figure 15. Roadmaps on the second level, Roadmaps Level 2 (RM2), are also developed by Concept. These are not as time-line like as ordinary roadmaps. A RM2 consists of different conceivable high level product specifications for a future product. RM2 is also referred to as technology scenarios, as these different product specifications are perceived as different technology scenarios, since only one of the product specifications/scenarios will be selected in the end. However, some of the technologies, components and specifications constituting a scenario are in turn shared with other scenarios for the same product to a varying extent. The technology scenarios are advantageous for addressing future authority regulations which VPT need to comply with. The next levels of roadmaps, Roadmaps Level 3 (RM3) and Roadmaps Level 4 (RM4), are made by the five different sub systems. Each sub system (besides Hybrid Technology) develops several RM3 and RM4 internally. Their roadmaps show technology developments within their technology areas that are judged as important and appropriate to work with, in order to be able to deliver needed technologies, systems and components for the different products in RM1 and product specifications in RM2. The nature of the content in RM3 and RM4 ranges from: statements, titles or key words regarding what components, systems, technologies and technology areas that should be focused upon – to, simple descriptions of project proposals or activities that should be included in various project proposal. RM4 show the details not covered by RM3. The RM3 and RM4 development activities sometimes begin earlier than what is indicated by Figure 15. Sub system group managers are often responsible for the development of RM3 and RM4; however, the group member engineers are often a source from where the group managers get input regarding how to update RM3 and RM4 from the previous year. The roadmaps that have been developed by each sub system are presented by the Sub System Directors during the AE workshop, indicated by the blue hollow triangle. Some of the Sub Directors are also accompanied by their sub system’s AE Coordinator. Other participators during AE workshop are responsible people from Concept as well as the three local AE managers.

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6.2.2. AE project selection

The first project selection stage starts with the selection of AE Sub Programs. The total AE Plan is divided into approximately 10-12 different AE Sub Programs (see Figure 16). Some of these are more or less permanent like the Advanced System Programs, one for each Sub System. Concept Programs are created on a need basis, often dictated by emission legislation updates. Feature programs are also created on a need basis depending on the importance of a specific feature and the need for cross sub system collaboration. When the AE Sub Programs have been defined, a preliminary budget frame is proposed by the AE Managers and decided by the Global Advanced Engineering Committee (GAEC). GAEC includes the AE Managers and representatives from Product Planning and Volvo Technology. An AE Sub Program manager is appointed for each sub program. These managers have the global responsibility for their program even though they belong to a local site organisation.

Figure 16: AE Sub Programs

The following stage, AE Project Plans, refers the development of project plans for the project proposals that were selected during the AE Sub Programs stage. This should be done prior to the first review phase, Review Phase 1. During the review phases, Sub System Directors and Program Managers present and argue for the projects they have selected and want resources for. It is GAEC who is responsible for the review phases and approves or disapproves the proposed projects in the AE Sub Programs. During Review Phase 1, Sub System Directors and AE Sub Program managers get feedback from each other but mainly from GAEC who gives indications on how many resources different managers and directors will get, which projects seem appropriate and which projects proposals need changes and improvements. Subsequently to Review Phase 1, the best project proposals are developed further; partly due to feedback from Review Phase 1, but mainly because of detailed cost estimates requirements

Control System

Combus tion

Base Engine

Driveline Hybrid F1

C1

C3

Concepts Programs Feature Progr. Advanced System Programs

C2

F2 F3

Competitor Intelligence

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from Review Phase 2. There are too many project proposals for doing such detailed cost estimates for all of them prior to Review Phase 1. The project proposals are then reviewed a second time during Review Phase 2, which settle the final resource allocation to the different AE Sub Programs. Global AE Plan is afterwards approved by GAEC in quarter four and consists of all the different plans of project plans that make up the AE Sub Programs.

6.2.3. Concept

The Concept department is a function for Project Management and System Integration. Besides developing RM1 and RM2 are they also responsible (together with Product Planning) for the initial pre-studies and concept studies before the actual product development takes place. Regarding the roadmaps creation done by Concept, it is the local Concept Directors from the three local sites who are developing RM1 and RM2 together. This is done trough informal meetings between themselves and with other co-workers from the Concept Program and internal customers from Volvo Business Areas and Product Planning. Concept considers various aspects, type of knowledge and information when they are developing the roadmaps. The most important inputs are the VPT Business Plan; Long-term Product Plan and Strategy; authority regulations and incentives; as well as the long-term feature plan. Other considerations include previous roadmap versions; advices and opinions from experts and technical specialist; markets; competitors; and the competitive situation. Concept’s view of AEPP is that it fundamentally consists of four elements that are vital for AEPP to function properly and to be successful. These elements are: Communication between the people who are involved in the process; Collegial Control referring to that everyone is held responsible for their own opinions and decisions by their colleagues, who also provide criticism; Variation and diversity among the employees who bring different perspectives, knowledge and opinions; and Transparence which refers to that the involved units and people in AEPP can view and survey what the others are doing. An advantage of the current AEPP approach perceived by Concept is that many competent and updated people are involved – who provide great feedback and good opinions. On the other hand, a drawback is that there is no specific method for selecting the components in an objective way for the technology scenarios in RM2

6.2.4. Sub processes of AEPP

The previous description of the different stages, with corresponding activities, that make up AEPP is how project selection is carried out within VPT AE on a high level of abstraction. In reality, there are much more aspects and details of AEPP that are of fundamental importance for selecting the project portfolio. In terms of the PPM framework designed by Dawidson (2006), the previous description would correspond to the general selection process. However, the larger part of the work done by each sub system can be identified as work done within one of several sub processes within AEPP. In fact, all work and activities, from when the sub

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systems start working with RM3 and RM4 to when they have decided their final project portfolio after Review Phase 2 can be said belonging to one of several sub processes, with a few exceptions. The exceptions are mainly when the Sub System Directors (with or without assistance or a delegate) participates in the AE workshop and Review Phase 1 and Review Phase 2. Regarding the work with and creation of Concept and Feature Programs during the AE Sub Programs stage, and earlier during AEPP for that matter: whether these activities should be classified as belonging to specific sub process are not clear as the empirical data is rather limited on this aspect. However, as they use RM1 and RM2 as input and as they are part of the AE Sub Program stage together with the sub systems’ sub processes, it might be appropriate the classify also the work with the Concept and Feature Programs (which also are sub project portfolios) as sub processes. Section 6.3. will describe the five sub processes which organizes the activities carried out within each sub system.

6.2.5. Volvo Technology involvement

Besides the already mentioned participators of AEPP, there is another actor which is involved as well. Volvo Technology, which belongs to Volvo Group, is a central research unit that supplies VPT with consultant expertise for innovation, research and development. They develop a lead in existing and future technology areas of high importance for Volvo Group and their focus is on both hard and soft projects within a system approach framework. Volvo Technology also participates in national and international research programs involving universities, research institutes and other companies [website E]. They have a role in the corporation to influence. Without having any budget, they depend on project support and to deliver valuable solutions to their customers in Volvo Group without making any profit out of their business. Volvo Technology develops technology concept proposals by aggregating corporation-internally generated or externally influenced knowledge. These concepts or the initial results from these are then proposed to VPT as project proposals Volvo Technology contributes early in the creation of the roadmaps and AE Sub Programs. Usually they come up with project proposals in the beginning of the AEPP which they think should be done. Even though Volvo Technology are getting better and better in the forward planning and that they have an intense dialogue with VPT, Volvo Technology’s opinion is that they should be involved earlier in AEPP. If they got access to a prognosis of the yearly VPT project frame expectations in advance, then this would facilitate Volvo Technology’s own planning and they would have longer time to come up with a frame of solutions, and thus make the process more efficient. Considering the project selection at VPT AE, Volvo Technology declare that there should be clearer statements about what is driving and pushing the main technologies forward, and AEPP should be more top-down than bottom–up as it is today. The focus on technology concepts could be a somewhat more structured and sequenced.

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6.2.6. Product Planning

Product Planning is a unit which belongs to Business Office, which is a support function under the VPT CEO. Product Planning are responsible for developing the product plans. This means that they perform external analysis, including analysis of markets, competitors, regulations, customers and users. They communicate these findings to the Product Development organisation. They are also leading the pre-study phase prior the product developments, which means creating the project prerequisites and defining what the projects are expected to deliver. In this way, Product Planning is increasing the connection between the markets and what is done in Product Development – hereby decreasing the gap between the technologies and market needs. For VPT AE, a particularly important responsibility Product Planning has is the creation and communication of long-term product feature plans. Product features are more or less measurable product attributes or properties. However, particularly with these features are that they represent aspects that are of importance to the customers and users. These product features and their target goals have been said to drive the entire AE operation. There are approximately 20 product features, grouped into different groups. Examples of such product feature groups are Performance, Quality, Cost, and Environment. Figure 30 in Appendix II.4. show an example from the cell phone industry regarding some product features (called customer utility dimensions) which have been of importance in that industry, and how these features are connected with technologies and their performance dimensions. Product Planning also stated what evaluation criterions they regard as appropriate for VPT AE to use in AEPP. The criterions and dimensions are as follows:

• Regulations • Concerned markets • Involved VPT products • Customers (other customers – forgotten, potential) • Suppliers • Risk assessment (timing, technology, platforms and resources) • Start and delivery date • Connections between projects • Small or large sized project • Features (positive or negative impact; small medium or large impact)

6.3. Five sub systems – Five AEPP sub processes

A large part of the AEPP activities are carried out within the five sub systems. As already, stated, these activities make up five sub processes of AEPP. These sub process all have three different stages: roadmaps developments; AE Sub Program creation; and the there after following activities, including continuing project proposal/plan developments, preparations for the review phases, review phases, and the corresponding activities after the review phases, and the final project portfolio selection during the later part of quarter four.

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This section will describe how each sub system has organized their work within these sub processes. However, the focus will be upon the two first stages, roadmaps developments and AE Sub Program creation (the initial project selection). It can be noted that at what time during the AEPP year the actual work within each stage is carried out varies significantly between the different sub systems.

6.3.1. Combustion

Combustion is divided into four technology areas with three group managers (one at each site) for each area5. Group managers are central persons in Combustion’s sub process of AEPP, and a large part of their total work is devoted to AEPP. They are responsible for driving AE within their group’s technology area, and they are the ones to assure that VPT are global leaders within this technology area from a ten years perspective. However, only the Sub System Director is participating in the review phases during the later half of AEPP. Roadmap Level 3 and 4 creation Each of the four technology areas develops their own RM3 and RM4. It is the three group mangers from the three local sites that develop the group’s roadmaps together. However, in order to accomplish this, they need input from many other people with relevant knowledge and skills, both from their own sub system and Volvo Technology. The Sub System Director approves the roadmaps developed with the four groups, however, he usually do not have any complaints or objections. The following aspects are considered when they try to decide what content should be included in the roadmaps:

• RM1 and RM2 (frames, requirements, expectations) o which technologies and projects have most potential to reach these goals

• Emission regulations • External analysis (performed by themselves and others in VPT and Volvo Group)

o the industry, competitor products, markets, technology developments o collaboration with competitors, conferences, consortiums

• What needs to be done in order for VPT and their customers to stay competitive • If the content is realistic • Costs

RM1 and RM2 needs to be finished as these sets the frames regarding what Combustion should do, in order to develop and formulate what strategy and technologies are needed to reach the goals in RM1 and RM2. However, the group managers usually become pressured during the second part of the year as RM1 and RM2 not comes earlier than what they do. The roadmaps are made up of project proposals. These concern and are described on system level (whole engines) and describe improvement potentials and desired functions for systems

5 The following description is made with starting point from an interview with one of these group managers, who emphasized that he do not know exactly how the other three technology areas are working with the developments of RM3 and RM4 and suggestions for AE Sub Program content. Consequently, the following description will be a mixture of Combustion’s sub process in AEPP, and one of four sub processes in Combustion’s AEPP sub process.

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as a whole. RM4 are in turn on component level (e.g. coolers and turbo) and describes what they want to do in order to reach the goals in RM3. They work with both RM3 and RM4 at the same time, but they start with RM3 and identify the systems they believe are necessary in the future, then it comes naturally what function each component needs to have. If a component does not have the necessary function at the moment then an activity needs to be performed. The project proposals consist of several activities. The procedure for roadmaps developments within the group are as follows. Early during the first quarter, they arrange seminars where they let the bottom-up process generate input to the roadmaps from co-workers within the sub system and from Volvo Technology. This input is compiled and an assessment of its relevance and probability of realization is made. It was emphasized that it is important to explain to the co-workers why their suggestions are implemented or not. The co-workers are expected to document their project and activity proposals by describing their ideas and an appropriate way of implementation and the proposal scope and size. These documented proposals are then sent to the group managers and others that need this documentation. RM3 and RM4 are then developed by the three local group managers trough phone and Internet meetings where they use the proposals to develop a new version. They have a five level degree credit system to assess the proposals. Due to the general workload, they are usually under pressure and the quality of RM3 and RM4 are therefore not as high as it could have been. This results in extra work later during AEPP. In advance planned meetings are perceived as one way to handle this issue. It is perceived as a disadvantage that the roadmap templates only have room for key words and activity titles. This makes it hard to describe what they want to do, which in turn makes it hard to make good assessments as the content of proposals is not visible. The perceived advantage with their approach is that they make good use of the co-workers creativity trough the bottom-up process. This way the ideas really reach the surface. The three group managers evaluate and handle the different proposals somewhat differently. A consequence from this is that the three managers has different opinions and are not always in agreement. However, it is perceived as an advantage that they are more than one person so they can get constructive criticism on their opinions and suggestions. In this way, they get several perspectives and do not get stuck in a single way of looking at things. The disadvantage with this approach is that they do not have any leader with authority to make decisions, which can result in compromises, which in turn can result in two activities performed mediocre instead of one activity performed perfect, as the resources are not enough for both activities but they can not choose between them so they have to do both. Furthermore, it is emphasized that they need a more appropriate external analysis, more external analysis activities needs to be conducted and more of the right activities. Initial Project Selection RM3 and RM4 are used as a foundation when Combustion’s AE Sub Program is developed. Each technology area group develops a suggestion for their part of the program. It is the three local group managers who develop the suggestion together from the basis of the project and activity proposals that have been received from co-workers and developed by themselves.

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The three group mangers meet during a two to three days meeting where they develop their suggestion of how Combustion’s AE Sub Program should look like with regard to their technology area. The suggestions for Combustion’s AE Sub Program developed by the four groups are sent to the Sub System Director who compiles the entire AE Sub Program suggestion for the whole sub system. Here the Sub System Director mainly focus upon assuring that the four groups are not planning to do the same kind of projects, rather than prioritizing the list by himself. The three group managers brings to the meeting their own prioritization list of project and activity proposals that they want to implement and approximated assessment of how much resources they want to allocate to each proposal. From these prioritization lists, they then negotiate with each other in order to develop a common suggestion of prioritization list for their technology area. In excess of the prioritization lists, they also use their own sub system’s budget frame of the current year. They note what proportion they had of Combustion’s budget last year, then take the same proportion of this year’s budget and multiplies that proportion with 1.25. The purpose with assuming a 25% larger budget than last year is to let the Sub System Director have the possibility to vary the four sub budgets from year to year. During the discussion and argumentation regarding what projects ought to be financed and implemented they use a five degree rating scale for assessing the projects, where one point means interesting and five points mean necessary. About 50 proposals are handled this way. It is not always easy to define where the boarders between the four groups’ technology areas should be set, and therefore, there is some communication between the groups prior the selection of projects by the groups, but it is the Sub System Director that finally assures that they have not planned the same work twice. The Sub System Director also communicates with the other sub systems regarding the whole set of AE Sub Programs. The external communications deal with whether specific projects should be financed by one AE Sub Program or another AE Sub Program, partly due to avoid dual works. This external coordination, however, are made first during the review phases together with GAEC. A perceived disadvantage with this two to three days meeting approach is that there are no leader with authority who has the right of decision, which results in long discussions, which no one has the authority to end. The advantage is that they are three persons with different experience and knowledge and thoughts that have made reflections regarding the relevance and appropriateness of the different project and activity proposals. Evaluating Project Proposals

When it comes to what factors and criterions that are considered when the three group managers negotiate and develop their mutual suggestion, the following were mentioned:

• How big potential there is in the proposal to reach the defined goals and requirements in RM1 and RM2 (if it has a very high potential, one is able to take a higher risk)

• Necessary to comply with a future authority regulation • The realism in the proposals (the realism in using the technology in their operations

and products) • Whether the development can be done within a reasonable time frame • Cost versus benefit (do cheaper alternatives exist?) • Product features

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If projects have high contribution potential, then they are willing to accept higher risks. It was said that less than 50% of their project outputs are implemented into the products, which is a measure of the average risk of their sub project portfolio. The risk assessments they do are made from experience and are not quantified with numbers or any other scale. However, it was said that the organization should take even higher risks when they allocate resources to AE projects; one success out of two is perceived as quite good. It is emphasized that it is a problem that high-risk activities are hard to acquire resources for due to the AEPP design. One reason is the division into eleven AE Sub Programs with eleven responsible AE Sub Program managers and Sub System Directors, which all have their own deliverables and goals to prioritize. This division of responsibility for resources and deliverables among several small AE Sub Programs gives the managers and directors less space to venture on high risk projects, than if there would have been only a few responsible managers or directors responsible for deliverables but with more resources to access. After the preliminary project selection The project plans and cost estimates are usually made by the person who came up with the proposal. Though the company has probably made some adjustments during the process and they need, except for the budge frame, also mind the adjustments and what has been made/announced during the year. What then decides if their project proposals and their project plans finally enters the Global AE plan is how well they succeeds in convincing the resource providers how their proposals supplies the potential that is demanded. During the AE Plan Review 1 and 2 the Sub System Director can argue for the proposals that he includes and want go get financed. About half the amounts of project proposals are dismissed during Review Phase 1.

6.3.2. Hybrid Technology

The central persons involved in AEPP at Hybrid Technology are the AE Coordinator and the Sub System Director. The AE Coordinator is responsible for the AE activities within the sub system, planning and allocating the budgeted resources, which projects to launch and follow-up of these projects, as well as external analysis of and watching competitors and other external developments. The coordinator also manages their applications for external founding for research, as well as communicates with VPT’s Product Planning. Hybrid claims that they follow AEPP quite well, partly due to the local AE responsible who carefully tells them what to deliver and when. Creation of Roadmap Level 1 and 2

Hybrid claims that they should be more involved in the creation of RM1. As it is today, Hybrid’s Sub System Director and AE Coordinator are asked for their opinions and input; however this is not done in any systematic or structured way. Regarding the creation of RM2, they are involved and asked to a higher degree for their view and opinions regarding the general (external) technology developments within the area as well as material issues. Also on this level, their participation is rather sporadic. What enters the technology scenarios in RM2 depends on their sub system’s opinions regarding what they find most appropriate. These insights come from previous AE projects,

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simulation activities, competitor analysis, and what technology the suppliers possess. Also information about oil prices and oil-supply-scenarios has been considered. Improvements regarding RM1 and RM2 creation identified by Hybrid involve a more structured approach for gathering other information input in addition to authority regulations – a more clear process with more guidelines regarding what input to include, how to acquire this information, who should do what and who should be responsible. Furthermore, they also suggest that VPT should not limit themselves to only one future scenario on the RM1 and RM2 levels. VPT should instead work with two to three product plans with different future scenarios of the external situation. AE Sub Program and Roadmap Level 3 and 4 creation The creation of RM3 and RM4 and their AE Sub Program are not separated. However, most of their time are devoted to their AE Sub Program as their roadmaps mainly shows the general (external) technology developments within the hybrid area and whether various technologies are beginning to reach a mature state. Hybrid would like to have more clear definitions regarding what the roadmaps on level three and four should contain. The actual creation of their AE Sub Program is mainly made by the AE Coordinator and the Sub System Director, with some input from the local Section Manager within Hybrid regarding the availability of human resources. VPT’s Product Planning and external research founders are the stakeholders external to the sub system that have the most influence over how resources are allocated to various project proposals. Agreements about finance from and collaboration with external authorities and similar governmental organisations have always been initiated from higher levels in Volvo Group, usually from AB Volvo’s and Volvo Technology’s top management. These agreements usually implies that an authority provide Hybrid with an amount of resources to spend in a specific research program, provided that Hybrid finance an essential amount of the costs themselves, and that Hybrid delivers what was agreed between the parties. What externally financed activities Hybrid must participate in are decided by the higher levels. This locks significant portions of Hybrid’s budget that they wanted to allocate to other projects, as the external activities sometimes fit and sometimes not. Hybrid have close collaboration with Product Planning and they have a continuing discussion with each other regarding what Product Planning believes that the customers wants and what Hybrid believes that they can deliver. Project proposal evaluation When the various project and activity proposals are to be evaluated, they are first divided into four categories: 1. externally founded projects, which must be done; 2. projects that are necessary in order to reach the goals within the product plans and from Product Planning, these are the most important proposals; 3. competitor analysis; and 4. fundamental research, which is the most stimulating work but least necessary. Besides proposal descriptions, they also use information input regarding the customers’ needs, how mature the suppliers’ technologies are, as well as their overall picture of the hybrid area.

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There are many other important aspects and criterions considered when evaluating and selecting project proposals, but the most important ones are:

• The project’s potential to reduce cost • Potential to increase performance • If the project is necessary for reaching the market in time

Other examples are:

• VPT’s strategy and business plan (and sub system goals derived from these) • Hybrids capability to deliver product features and functions desired by customers (and

if this can be delivered at an competitive manufacturing cost) • Supplier competence • Increasing Volvo Group’s reputation and image as leader within the hybrid area • Create a balance between short-term and long-term projects

Furthermore, they also have different criterions they consider within the four categories. Hybrid suspects that they are not totally consequent when it comes to how they are evaluating the projects. They also try to watch technology areas which they themselves are quite inactive in, in order to create balance between the areas, in order to decrease the risk that they would miss any important developments. They do not do explicit risk assessments of the project and activity proposals. However, they tend to prioritize well know technology where they know that the suppliers have competence and are closer to industrialisation; in this way projects with high risk are dismissed indirectly. Project prioritization, selection and further development When all the project proposals have been analysed and evaluated, then a first prioritization of them is made. This is done by the AE Coordinator and Sub System Director using a tool called pairwise comparison (described in section 4.1.2.). The tool is implemented trough an Excel spreadsheet. When using this tool, all project proposals are individually compared pairwise to all other project proposals. If a project is assessed as superior to another project then it gets one point. The more points, the higher prioritization a project gets. Hybrid uses their overall picture and feeling of the hybrid area when they make the assessment of which projects are superior or more important than the others, however it includes but are not limited to the aspects and criterions outlined in the previous section. Since they have prepared and know their project proposals before applying the tool, ranking 70 proposals takes approximately two hours. This prioritization is made prior to and presented during the AE workshop. The prioritization list is also sent out to all responsible people for Hybrid Technology globally, including Nissan Diesel. These individuals can then provide feedback and questions regarding the proposals and the prioritization. The AE Coordinator also sends inquiries to component responsible people and other co-workers within the sub system in order for them to provide suggestions for improvements and changes of the project proposals and the prioritization of these. On this follows some iterations and communication between the ones involved until the proposals and the prioritization is improved enough.

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Drawbacks perceived by Hybrid is that it would be beneficial if their internal AEPP approach was more clear, with more explicit criterions and guidelines, as Hybrid’s work has not been performed with enough consistency until this date. Especially the evaluation and comparison of project proposals are not made with enough consistency. Hybrid also wishes that it would be possible to compare different project proposals from different sub systems. The advantage perceived with the AEPP approach right now is that it is a quite rapid approach. After the preliminary project selection and iteration rounds When the iteration process is finished Hybrid now tries to identify where the development activities within each project should be performed (the AE developments financed by Hybrid have historically been outsourced, mainly to Volvo Technology). If the AE Coordinator finds a project leader for the project, then that project leader makes the project plan, otherwise that task is made by the AE coordinator himself. The Sub System Director presents the AE Sub Program suggestion and corresponding project plans during Review Phase 1 and 2. During the second half of the year it is mostly done four to five changes within each project plan/description. The budget can be changed by resource providers (GAEC), and in response to this, Hybrid can either cancel a project or make adjustments to all projects. The project content and deliveries can be changed due to major changes in the external technology development by competitors and others, as half a year are still a long time period within the hybrid area with much room from technology developments. Hybrid initiates these changes that are not made due to budget adjustment. A drawback perceived by Hybrid with the second half of AEPP is that there are a quite low amount of work during quarter three compare to the end of the year during quarter four. It could be an advantage to have a larger spread of the deadlines in the latter half of AEPP.

6.3.3. Base Engine

Within Base Engine, Engineering Leaders6 are the central individuals during the early stages of AEPP, whereas the Sub System Director and AE Coordinator become more central and influential from the creation of their AE Sub Program and henceforth. Engineering Leaders are globally responsible for certain components (e.g. bolts, cylinders, gears, crankshafts and pistons). This means that they have coordination responsibility for these components and should make sure that no sub-optimization or special solutions are developed. As the interview with Base Engine only heard one Engineering Leader, there might be various differences regarding how all of them manage the AEPP activities. Base Engine follows AEPP, however, up to now they have had a hard time accomplishing everything in time as they usually have been several months delayed. Base Engine stated that the troublesome aspect with AEPP is that it runs once a year, which means that they barley have time to start with the technology development activities before the planning of the next year begins. It is perceived that it would be an advantage if projects could be approved on up to a three years basis, so they could know if a specific project would get founding also the following year while they are working within it, instead of needing to search for more resources each year.

6 Engineering Leaders are group managers as well

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Today it is difficult to search for money for something that they hopefully have succeeded with after 12 months of work, since they have to search for new resources after six months already while not knowing what they actually can accomplish the following year. Partly, this impedes the co-workers since they do not know if the project will be successful, and partly because the resources might be allocated to other projects even if the development was successful. However, it was clarified during the first workshop by the local AE Manager that it is possible to get unofficial acceptance for a specific project and corresponding resources for more than one year a head, but it have to be asked for. At Base Engine the co-workers bring ideas and proposals to responsible people of other external AE Sub Programs. But whether this is successful depends on how well they are at selling their proposals and if they are lucky enough that a meeting is held at all, as such meetings mostly happen by chance. Effective communication and idea anchoring with these contacts is necessary but it is troublesome that this have to be done during a short period while they at the same time are working on the projects that were founded the previous year. This creates a frustration that causes those co-workers who want to work with AE projects to hesitate. There is a risk of doing a lot of work without getting any founding, which is perceived as tiresome. The solution of the matters described above that Base Engine emphasize are to have more and earlier screening and feedback on project proposals so the effort can be focused upon the proposals that have potential to go trough AEPP and enter Global AE Plan. Roadmap Level 3 and 4 creation Every Engineering Leader develops RM3 and RM4 for their components. Base Engine has approximately five Engineering Leaders. RM3 contains headlines and areas to work within, e.g. “work with this component in order to meet this requirement”. RM3 are not always on a system level as for some of the other sub systems as Base Engine’s components are so large that they are almost systems by themselves. Within RM4, they have more specifically written what activities they are going to perform, such as “we will develop this process in order to reach this requirement on this component, with help from this”. In this way, RM4 is refinement of RM3. The Engineering Leader’s group members are involved in the roadmaps creation and provide him with suggestions on what content to have in RM3 and RM4. It is usually the co-worker who is globally responsible for a specific component7 that is providing the proposals for that component. Co-workers with component responsibility provide approximately 95% of the project proposals, but other co-workers are also welcome to provide proposals. The process Base Engine has for developing RM3 and RM4 are the ordinary global group meetings. First, they ascertain that it is time to develop RM3 and RM4, and then review the previous version from last year and reflect upon what kind of updates that is needed. Then they have a specific meeting where they make new versions with new proposals and changes. This is usually done during the first half of quarter three.

7 The Engineering Leader is responsible for several components, including the components his co-workers are responsible for.

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The information foundations they have when developing their roadmaps are mainly their experience from the daily work. In this way, the daily experience are their primary “tool”, while RM1 and RM2 set the frames and are considered more as a background and source for feature requirements. The communication that exists during the development process, besides the global meetings, are face to face contacts during the daily work, but in a quite informal manner as it is often in the corridors or during coffee breaks that new development proposals are discussed. What determines the content in RM3 and RM4 are the discussions during the global group meetings based on their daily experience. As such, the prioritization of project proposals can be conscious as well as unconscious. Base Engine is component driven, which means that they try to include the large changes and improvements for each component and to create a project proposal around these activities. A single proposal is supposed to cover all function and feature requirements for that component. But occasionally Base Engine work with parallel tracks, in order to select concepts. When they evaluate a project proposal they regard the components and which the most or the two most troublesome problems are, or what the new requirements are. The Engineering Leaders then send their roadmaps to the Sub System Director who prioritize the content and try to anchor his compilation towards GAEC. Advantages and drawbacks with the roadmap creation

Base Engine perceives their roadmap creation approach as appropriate since it is structured and divided in a good way and it is really the individuals that knows the components and have the necessary experience that are involved, and they have good discussions within the groups. The process works well and is clear and steady and everyone involved knows where the important documents are. This means that the proposals “almost emerge by themselves”. The disadvantage is perceived to be that they need assistance to be able to determine whether RM3 actually covers all the goals and requirements in RM2. As it was before, there was a risk that this was not the case. However, they have recently appointed an AE Coordinator that now has the responsibility to make sure RM3 covers RM2. Also, the feedback during the AE workshop should provide directions if they actually have missed to cover something. Project Selection The selection of what to include in Base Engine’s AE Sub Program is initiated by the Sub System Director who develops a list of proposals from the RM3 and RM4 documents that were sent to him. Then he normally has a discussion with the Engineering Leaders regarding if any external AE Sub Program should finance any of the proposals. When Base Engine during the end of AEPP finally knows how much resources they will receive then they arrange a prioritization meeting between the Sub System Director, AE Coordinator, and Engineering Leaders. The AE Coordinator has in advanced to this meeting prepared the proposals that are going to be discussed and possibly made a preliminary prioritization. Note that this approach means that the project plans and descriptions are made before they are prioritized.

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While discussing and selecting projects, criterions and aspects considered include the following:

• What is most important – what can suppliers do • Probability to reach project goal within deadline • Achieving new functions for the components • RM1 and RM2 (main consideration when selecting projects)

o authority regulations and other requirements • Function and product feature requirements

During the meeting they usually rank the proposals on a three degree scale. However, it is believed that the various projects are evaluated differently and that there might be some chance involved regarding what projects are selected. Drawbacks

A perceived disadvantage with their selection approach is that it is often too rapid, partly due to as they can be several months delayed. These meetings can be so rapid as if someone for example let their thoughts drift away for a couple of minutes then two to three proposals can either have been selected or dismissed. Base Engine state that they need a more iterative approach, so they have a few days to reflect upon what the optimal prioritization really is. The prioritization approach right now is also perceived to be somewhat chance influenced, with lack of systematization. It is also a drawback that the prioritization is not made much earlier. The coordination of program content and development activities with other AE Sub Programs are usually initiated by representatives from these, as they usually have made their prioritization after the summer and know what they have to ask. The coordination is usually made by the various project leaders who communicate with a design engineer in order to come up with something clever together. Base Engine identifies a drawback with this approach as it is necessary to know who to coordinate and communicate with, and that there are so many stakeholders that the time is not enough to speak with all of them. However, the AE Coordinator who recently was appointed is supposed to make the coordination happen. Risk and balance issues

Risk assessments are mainly based on experience from the AE projects that Base Engine has been involved in. This experience results in an ability to feel whether there is any substance within a project proposal and if there are any high-risk activities. Besides experience, what collaboration partners (universities and suppliers are involved in 80% of their projects) that are involved in the projects are also important for the risk assessment. Moreover, unclear project plans, unknown partners, and unrealistic goals can also increase the risk. Base Engine state that they have a rather low risk tolerance as 70 – 80% of their projects actually reach the milestones in time. It is estimated that fewer than 20% of the project deliverables that are implemented during the manufacturing stage. Moreover, Base Engine state that it is important, from a balance perspective, that all sub systems prioritizes the same goals. For example, that all sub systems prioritizes the peak cylinder pressure at the same time, so all of them pull in the same direction.

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Base Engine is more requirements driven then return on investment driven, which is another balance dimension. Also, moderately complex, low risk projects more frequently have higher priority than more complex long-term projects, which is another indicator of how Base Engine balances their project portfolio.

6.3.4. Driveline

The sub system Driveline has appointed an AE Coordinator who is responsible for coordinating their AE operations. Driveline follows AEPP in large, but the different stages might float back and forth during the four AEPP quarters, since it is not necessary to follow the rules for the sake of the rules – heavy detailed plans that mainly apply to others do not add value, as they state. However, Driveline’s AEPP effort and decisions are mainly taking place within the sub system’s local section in Göteborg. Roadmap creation

Driveline begins the AEPP early in quarter one where large parts of the sub system’s local section in Göteborg gathers for three to four meetings together with the Sub System Director and discusses freely and open how the situation might look like in ten years from now. Driveline are not so influenced by anticipated authority regulations which is a reason for why their discussions can be and are more free and dynamic – they discuss back and forth, the big picture and the details at the same time. These discussions also concern what the content in RM3 should be, and in this way the up coming work with RM3 and RM4 are coordinated and synchronized during the discussions. After these meetings, the AE Coordinator creates new versions of their internal Roadmap Level 2 from last year’s version, with input from the previous meetings. Approximately 10%-20% of the content is updated. This RM2 does not contain any technology scenarios. The technology comes out as a consequence in RM3 and RM4, which is a bit late. This is inherent in the system where there is no place for technology in itself. The content in RM2 and the underlying discussions are also coordinated with Base Engine before the work with RM3 and RM4 starts. The AE Coordinator meet with the group managers and discusses the new RM2 content with them, and then divide different parts from RM2 to the group managers in order for them to create RM3 and RM4 for their parts of RM2 respectively. The group managers participated in the discussions which preceded the creation of RM2 so they know what to do. When working with their roadmaps, the group managers consults relevant people outside the local section and people responsible for product features. Later on they have a meeting where the group managers present their roadmaps and receive feedback from each other. The advantage perceived by Driveline with this approach is that the roadmaps and the necessary preparations to be able to create them, demands for and creates valuable discussions. However, Driveline believes that they should work more with so called quantified RM3 and RM4. That is, roadmaps that plot feature variables against time, current performance and required performance. Also, roadmaps plotting competitors feature levels in the same manner should be worked with more as well.

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Project proposal development

It is the group managers who are responsible for developing project proposals from the roadmaps they have created. These proposals are created in the beginning of quarter three. Some proposals have already been presented at the AE workshop together with RM3 and RM4, but the detail level of the proposals is now increased. In order to create the project proposals, the group managers discuss what the current situation are and what should be done. They try to come up with as much ideas as possible in the beginning, and then start to screen these ideas and to create larger projects or packages from smaller ideas and activities. They want to create larger projects or packages as they do not get so much leverage or value from small activities that are not part of a larger context. Yet other reasons for creating larger projects are the resulting group dynamics and collaboration that arises from larger projects as more people are involved. Moreover, when the co-workers are part in a larger project, then they support each other and perform better. Furthermore, the risk that people only focuses on the stimulating parts decreases when they have a common responsibility for the larger context and project deliverable. Afterwards, the group managers create their project proposals solitarily, and present them for the others involved and evaluate the proposals together. During this process, the development of project proposals and project plans as well as the cost estimates are divided among the group managers who are responsible for their proposals. The group managers try to coordinate their project proposals on the global sub system level trough the Sub System Director and directly with the other local sites as well. The site in France delivers some project proposals during AEPP, but this has usually been when the Göteborg section have reached too far in their selection process to adjust the up coming AE Sub Program in order to include these proposals from France in common work packages. Project selection

The final internal AE Sub Program selection takes place between AE Review 1 and AE Review 2. It is the Sub System Director; the Göteborg site’s section manager; AE Coordinator; the group managers; and the feature responsible people that conduct this prioritization and selection. A couple of technical specialists and project leaders are often involved in the beginning. The project plans and cost estimates of the project proposals have been finished before these couple of selection meetings that are needed. The final budget is also know, and some project proposals have already been pruned and reduced as they are not that urgent and can be executed with a lower intensity during a longer time period. When this final selection is conducted, as well as when certain project proposals are developed previously to this activity instead of other proposals, there are several aspects and criterions that are considered:

• Contribution to product features • Compliance with authority regulation • Core values (safety, quality, environment) • Whether the project needs to be completed in the short-term or are more appropriate

for long-term • Customer needs (Volvo 3P), and end users • Doing one thing at the time – and doing it properly

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However, Driveline needs more scheduled time with Volvo 3P in order to be able to discuss more freely. Drawbacks and other project selection issues

Driveline state that there are huge differences regarding how different people make their project evaluations. Reasons for this are: individual opinions; what kind of forward planning the person foster; if the person is project oriented or feature oriented. Moreover, other reasons are that different persons focus more on the short-term whereas other focus on the long-term. Furthermore, some people focus more on theory and others more on experimentation. And some people want to implement the technology into to projects immediately, whereas other wants to do much more testing first. It is perceived as a drawback that there are too little focus on development of the basic technologies/parts/functions of the drivelines, and instead too much focus and reliance in some of the product features. However, it is at the same time perceived as an advantage that they are feature oriented, as the product features are very important. The advantage with their project selection approach within the AEPP frame is that there are a lot of discussions which results in a thorough anchoring of the proposals within the subs system, as well as thorough understandings of what the selected projects comprehend and why they are important.

6.3.5. Control Systems

Control Systems have appointed an AE Coordinator which is responsible for coordinating the Steering System and Control System units which make up the whole sub system. The AE Coordinator also works with early concept phases regarding what components that should be included in the products. Control Systems follows the AEPP to a large extent and this is much because of the local AE Manager who is pulling together AEPP and the various units and departments that are involved. Creation of Roadmap Level 3 and 4 Roadmap Level 3 and 4 are created by the three local section managers together with the Sub System Director. They arrange meetings and reflect about what RM3 and RM4 should contain. However, they alone are not inventing the content as they ask their co-workers and other companies for input. Input from the other sub systems are also considered to a large extent. The AE Coordinators are also important sources. The focus when gathering this input information is upon what have happened since they developed the roadmaps the previous year. They use RM1 and RM2, as well as roadmaps from suppliers, displaying anticipated and planned electronics developments. Moreover, they also have roadmaps displaying what VPT’s competitors are doing and what technology they are using, as well as other kinds of competitor analysis. What kind of control systems they are suggesting for the roadmaps are to a large extent dependent upon what the other sub systems are planning and doing. Conversely, when it comes to what kind of electronics and processes that should be included in the systems, they are much more autonomic relative the other VPT units. The try to set up their own electronics

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plan and analysing the market in order to know when to change to new technology. However, when it comes to the electronics, they are influenced by the electronics suppliers, as the suppliers are much larger than Control Systems and delivers to many other companies. RM3 and RM4 are not made at the same time as AE Sub Programs, however, while making the roadmaps, they are considering what they want to accomplish later on, including the next stage in AEPP – AE Sub Programs. On the other hand, the roadmap and AE Sub Programs phases sometimes blend into each other and are in that case made very closely. Advantages that are perceived with the current approach are that it is quite easy and flexible, and do not demand for any significant amounts of administration. A drawback is that the current approach is not an exact science but instead is very influenced by various peoples’ own judgment during the project selection activities. Project Selection

During the AE Sub Program creation, Control Systems develops suggestions for their own AE Sub Program as well as the Concept and Feature programs, and sometimes for the other programs as well. All co-workers and group managers are involved as they are informed in advance that Control Systems now are inside AEPP and that they can provide project proposals for the sub programs if they like. The AE Coordinator in Göteborg and France then compiles a list of project proposals they think Control Systems should select and how much resources should be allocated to these. They also try to sort the proposals into the three categories of AE Sub Programs – Concept programs; Feature programs; and Advanced System programs. The AE Coordinators thereafter call together the Sub System Director and the three local section managers, and then they work trough the proposal list together and makes the final prioritization. For selecting what projects to spend resources upon, they discuss on the basis of their own opinions and understandings and the various roadmaps they have for their disposal. They usually need more than one meeting for this selection activity as the discussions can get stuck every now and then. After the Sub System Director and section managers have done the project selection the AE Coordinators presents some project proposal to external AE Program Mangers, from which Control Systems wants founding for the same proposals. Regarding the interactions with other AE Sub Programs, the external AE Program Managers have basic ideas about what should be included in their programs which they explain to the AE Coordinators from Control Systems, while the AE Coordinators provide them in turn with ideas regarding what Control Systems should contribute with to their programs. Drawbacks

A perceived drawback with Control Systems’ current approach is that there is some arbitrariness involved when they are selecting and dismissing project proposals, and sometimes oneself is not completely sure why one wants to select or dismiss a certain project. Yet another disadvantage is when the project proposals finally shall be approved by GAEC, as it is hard to get resources for small and cheap single project proposals with high value

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compared to a group of small projects with individually lower value than the small single proposals but has high total value all together, as these projects are dependent upon each other. It is like, simplified, GAEC are prioritizing large expensive projects instead of cheap ones with higher value per resource spent. As a result from this, last time Control Systems took 10-12 small and cheap single projects that are quite independent of each other, and grouped them together and presented them as a single project, stating that Control Systems require resource in order to perform some of the project content.

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6.3.6. Comparing the sub systems AEPP approaches

Figure 17 and Figure 18 summarizes and compares how the sub systems are working with roadmaps and AE Sub Programs creation. The figures show who the central persons are – those who have the responsibility and/or have a large impact upon the final content. The figures also show how it is done, what aspects are considered, and if there are something special for the specific sub system’s approach.

Roadmap Level 3 and 4 creation

Combustion Hybrid

Technology Base Engine

Control

Systems Driveline

Cen

tral

per

son

s Group managers AE Coordinator and Sub System Director

Engineering Leaders (EL), Component responsible engineers

Sub System Director and local section managers

AE Coordinator and group mangers

How

is

it d

on

e 3 local group managers (Swe, Fra, USA) have phone meeting

Informally EL have global group meetings with group members

Meetings, Input from AE Coordinators and co-workers

Individually by group managers, internal RM2 discussions as input

Con

ten

t

RM3: System level. RM4: Component level – how reach RM3 goals

External technology development and maturity

RM3: components to work with and requirements. RM4: what to do and how

RM3: System level RM4: component level

Technologies to work with and when. RM4 more detailed than RM3

Co

nsi

der

ati

on

s RM1 and RM2 goals, competitiveness, realism, emissions

Supplier and user problems. RM1 and RM2

Other sub-systems, suppliers, competitors

Internal RM2 Product Plans

Sp

ecia

l

Early bottom-up seminars with co-workers used for idea and project proposal generation

Made together with AE Sub Program creation

Component-responsible engineers provides suggestions

High dependence on suppliers and other sub systems

RM2 discussions involving Sub director, section and group managers, AE Coord.

Figure 17: Summarize of how Roadmap level 3 and 4 are created within each subsystem

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AE Sub Programs creation

Combustion Hybrid

Technology Base Engine

Control

Systems Driveline

Cen

tra

l p

erso

ns Group

Managers (GM)

AE Coordinator and Sub System Director

Sub System Director with support from Engineering Leaders

Sub System Director and local section managers. AE-Coordinators (Swe, Fra)

Sub System Director, section and group managers, AE Coordinator

How

is

it d

on

e

3 local GM (Swe, Fra, USA) has a 2-3 day meeting. Each one brings a prioritization-list, 50 proposals. RM3 and RM4, Budget x 1.25.

Informally. Ranking tool to pair vise compare each proposal with all other approx. 70 proposals. Project list adjustment iterations with other people afterwards

Sub System Director extracts a list of project proposals from RM3 and RM4. Rapid prioritization meeting in Q4. Now days, AE Coordinator have done preparations

AE Coordinators make a first prioritization suggestion. Final prioritization done by AE Coordinators, Sub System Director and local section managers.

Group managers are responsible, for developing proposals. Global coordination trough meetings and the Sub System Director. Prioritized by Sub Director, section and group managers and AE Coord

Con

sid

era

tion

s

Time frame, Realism, Potential to reach goals. Cost versus benefit. Features

External financiers, Product Planning, competitors, suppliers, synergies, improve reputation, reach market in time. Balance

What can be done in time, Feature and RM1 and RM2 requirements Performance improvements Combustion-sub system.

Roadmaps, Program Managers, (develops larger proposals out of small independent projects to get approval for these)

Timing (short or long-term), Volvo 3P, users, one task at the time, features and function, Core values (Safety, Quality, Environment)

Sp

ecia

l

Sub System Director compiles ranking lists to avoid dual work

Iterations with the global Hybrid org. to improve proposals and their prioritization

Tend to choose moderately complex, low risk projects, rather than more complex long term projects

Group Mangers and co-workers are early inquired to provide development proposals

Final prioritization meetings between AE Review Phase 1 and Review Phase 2

Figure 18: Summarize of how AE Sub Programs are created within each sub system

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6.3.7. Drawbacks and other issues in AEPP that a TMET could address

The previous description of how the five sub systems have organized their sub processes of AEPP also focused upon what advantages and disadvantages that are perceived with the current approaches and AEPP as such. Figure 19 illustrates perceived disadvantages, drawbacks and other issues that was emphasised during the interviews. It is also indicated which sub system that expressed the underlying concerns of these assertions. The assertions are not order according to their importance. They are rather structured in order to place related assertions together.

Disadvantages, drawbacks and other issues to address with a TMET

Combustion 1 No group manager with right of decision results

in long time consuming discussions

Base Engine 2 Need for earlier screening and feedback on

project proposals

Base Engine 3 Too hurried and hasty prioritization meetings

Base Engine 4 Need for better prioritization systematization

Hybrid Technology 5 Need for more explicit evaluation criterions and

guidelines

Hybrid Technology 6 Need for more consistency

Hybrid Technology 7 Need for comparisons of projects from different

sub systems

Control Systems, Base Engine 8 Highly influenced by individuals, prioritization

somewhat influenced by chance

Driveline 9 Shifting evaluation focus between individuals

Driveline 10 Too much focus and reliance upon product

features

Control Systems 11 Expensive large project proposals prioritized

more than cheap small project proposals

Combustion, Base Engine 12 Too few high risk projects selected, risk

reluctance

Base Engine 13 Moderately complex low risk projects more

frequently have higher priority than more

complex long-term projects

Base Engine 14 Sales skills needed when progressing AE Program

Managers

Figure 19: Drawbacks and other issues to address with a TMET

These drawbacks and issues could to a varying degree be successfully handled with a TMET. However, of course, it would depend on how the TMET was designed and used. Explanations for how a TMET designed similar to the scoring models discussed in the theory section and the one used by SCA Tissue could address these drawbacks follows below. Also, the Analytical Hierarchy Process (AHP) described in the theory section also uses the same kind of criterions that scoring models do, in a similar manner. Therefore, some of the following explanations will be valid for a TMET based on the AHP tool as well, to a varying

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degree. The largest differences are that the AHP tool does not demand explicit explanations when rating projects, the projects are not individually examined on all criterions in a structured sequence, and the reasons for the ratings are not documented. This means that the AHP method does not generate some of the benefits that scoring models do as easy nor as reliable. Furthermore, in order to solve all of the drawbacks in Figure 19 the TMET would also need to involve the use of bubble charts – to handle balance issues and to increase the visibility. 1) No group manager with right of decision results in long time consuming discussions Scoring models can be compared to a meeting agenda. They are a good foundation to facilitate systematical, constructive and comprehensive discussions; using a scoring model when prioritizing projects should therefore allow for more time efficient discussions. Furthermore, as scoring models help identify strengths and weaknesses of different project proposals it should therefore be easier to reach consensus of how appropriate a specific project proposal is. Also, the produced ranking list could help ending discussions when no possibility for agreement can be sensed. 2) Need for earlier screening and feedback on project proposals Although scoring models are usually used in the end of the project selection process, they can be used in a less strict manner earlier in the process. SCA Tissue uses some of the scoring model criterions already in the front end of their project selection process for screening of insights and opportunities, and a few more criterions in the idea stage. Project proposal originators can also review the complete scoring model for self generated feedback, as the projects in the end will be evaluated with the scoring model. 3) Too hurried and hasty prioritization meetings As already stated, scoring models can be compared to meeting agendas. Time spent is indeed a matter of choice; however, using a scoring model implies structured and systematic evaluations of project proposals, one at the time. In this way, too rapid and unconsidered project prioritization would at least appear and feel a bit more irresponsible if having a scoring model for disposal. 4) Need for better prioritization systematization Scoring models directly introduce more structure and systematization to project prioritization activities. 5) Need for more explicit evaluation criterions and guidelines This is exactly what scoring models introduce. 6) Need for more consistency Scoring models include explicit criterions with corresponding anchored rating scale phrases, thereby increasing the possibility that all project proposals are evaluated and rated in the same manner – whether this actually is the case should be rather obvious.

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7) Need for comparisons of projects from different sub systems The evaluation criterions, anchored rating scale phrases, and weightings of criterions can be developed and selected in a way that they are relevant and fair to all sub systems. If that is the case, the scoring model can compare projects from different sub systems if the right combinations of representatives are involved. 8) Highly influenced by individuals, prioritization somewhat influenced by chance As scoring models are based on explicit criterions with corresponding anchored rating scale phrases, the room for individual selection of evaluation criterions and rating scales are hereby decreased. Also, it will be harder to mask weakness and other improprieties of specific project proposals due to the extensive and explicit evaluation. The prioritization by chance should also decrease due to the systematic, extensive and explicit evaluations. 9) Shifting evaluation focus between individuals Similar to the explanations above, scoring models make it easier for individuals to evaluate project proposals in the same manner. 10) Too much focus and reliance upon product features The evaluation criterions in the scoring model can be chosen in order to direct focus upon aspects of importance that currently attracts too little attention. 11) Expensive large project proposals prioritized more than cheap small project proposals Scoring models still demand for qualitative and subjective assessments, however, they can be designed in order to increase the possibility for small projects with high value to be selected. If designing them to produce a score-cost ratio ranking (discussed in section 4.1.1.), then the resource efficiency are also accounted for. Bubble charts and pie charts could be used in order to achieve a desired balance between large and small projects in the portfolio. 12) Too few high risk projects selected, risk reluctance Scoring models can be designed to increase the possibility for high risk projects to be selected by choosing the right criterions and weights. Moreover, how to manage risks and weaknesses inherent of individual projects might be discovered during the structured discussions. Information gaps implying risks might be filled during the discussions as well. The visualisation by bubble charts of risk-reward ratios of various projects and the entire project portfolio might help achieving the desired risk-reward balance of the entire project portfolio – presumed that appropriate risk tolerances and what the appropriate risk-reward balance are, have been communicated from higher management levels and is complied with. Also, risk reluctance might be easier to overcome if it can be visualised trough bubble charts that the total project portfolio risk still are relatively low.

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13) Moderately complex low risk projects more frequently have higher priority than more

complex long-term projects

Similarly to the discussion under 11), a scoring model can be designed to reward the more complex long-term projects more then moderately complex low risk projects. However, this is also a matter of what resource providers and other high level managers prioritize and what guidelines they communicate. Since, for example, if business strategy emphasises spending resources on complex long-term projects, then such projects should “automatically” receive high ratings on strategy-fit-criterions. Furthermore, bubble charts can be used to achieve an appropriate balance of the project portfolio with regard to the short-term/long-term ratio, as well as the easy-to-do/difficult-to-do ratio. 14) Sales skills needed when progressing AE Program Managers The value of great sales skills is often priceless. However, SCA Tissue emphasizes that having performed scoring model discussions is an advantage when projects needs to be justified to resource providers, since the participators now have systematically for each project discussed important aspects, identified strengths and weaknesses and also how to exploit and avoid these. In other words, the arguments and formulations needed for selling projects to resource providers have already been identified in the group discussions. Besides that groups often perform and think better than individuals, in this way one could indirectly leverage some of the sales skills of others when approaching a resource provider.

6.4. Analysing the AEPP approach

The previous sections have shown that VPT AE’s PPM approach – where AEPP is the core – is a well-laid process consisting of many elements and provides both structure and flexibility. Also, AEPP does already include stages/activities and tools recommended by PPM literature which will be discussed next. The frameworks and tools in the theory sections will be applied here.

6.4.1. The use of tools and methods

Several recommended PPM tools are already in use within AEPP. The most obvious examples of this are the roadmaps. The roadmaps help achieve a fit between the AE project portfolio and the business strategy. The roadmaps are used for communicating product plans, authority regulations and other requirements that have to be met as well as planning new technology developments. They are used when generating project proposals and for an initial screening of them and for the initial project selection as well. The sub project portfolio tool is applied as well which would be the division into different AE Sub Programs. This aligns the AE project portfolio with strategy by dividing resources upon five different areas of technology development (the five sub systems’ AE Sub Programs), dividing resources to specific new product developments aimed at coming authority regulations (the Concept Programs), as well as allocating resources for addressing specific market needs (the Feature Programs). Besides aligning the portfolio with strategy, this also helps to achieve a better balance of important aspects.

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Achieving a strong link to strategy and a balanced portfolio are two of the three PPM goals. Obviously, VPT uses two tools for the first and one for the second. The third goal, maximizing the value of the portfolio, is not addressed with an explicit tool in general. Hybrid Technology uses the pairwise comparisons tool and some of the other sub systems apply simple ranking scales for screening and selecting project proposals. However, a large amount of evaluation criterions are being used as have been shown. Product features requirements are formal evaluation criterions while the other evaluation criterions used by the sub systems appears to be of an informal nature. In this way, VPT AE are already using elements and principles of scoring models, which are tools recommended for addressing the value maximization goal.

6.4.2. Organizational aspects

Many people are directly involved in AEPP: AE Managers; representatives from Product Planning and Volvo Technology; Sub System Directors, section managers, AE Coordinators, AE Sub Program managers, group managers, and engineers (project leaders and technology developers). They are involved in different activities and have different kinds of responsibilities. In the common literature, frequently given advices are that high level teams should be responsible and that different organizational functions should be involved, such as sales, R&D, marketing and manufacturing (Dawidson, 2006). At VPT AE, high level managers are responsible – GAEC and Sub System Directors – but the project portfolio selection appears to be highly influenced from lower levels. Considering different functions, marketing (represented by Product Planning) appears to be the only involved function not doing R&D or product development.

6.4.3. Procedural aspects

AEPP is divided into several stages or activities that build upon and receive input from the previous ones. In fact, AEPP appears to include all the stages and activities included in Archer et al.’s (1999) framework. Strategic guidelines are developed by creating the roadmaps on level 1 and 2 and communicated by these as well. The AE Input elements are also of a strategic guideline nature. In connection to and during the creation of roadmaps on level 3 and 4, projects proposals are generated, pre-screened, analysed, and screened. And it is done with help from the higher level roadmaps requirements and other evaluation criterions. The first project portfolio selection takes place during the AE Sub Programs stage. The portfolio adjustment stage can be represented by the review phases. However, the AE Sub Programs stage includes several activities and whether to define all of these as selection activities or if some of these should be defined as adjustment activities is not obvious. For Combustion, the Sub System Director is doing the portfolio adjustment of the project selection performed by the four groups. In the case of Hybrid Technology, after the first selection they have portfolio adjustment activities which involve feedback from and selection iterations with other people in the global PD organization. Within Control Systems the AE Coordinators have made a preliminary ranking and resources distribution to project proposals which are adjusted together with the Sub System Director and Section managers.

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As already noted, the activities in the sub systems are parallel sub processes of AEPP, which is the general process. To begin with, AEPP is divided into different sub processes for developing and selecting the different kinds of AE Sub Programs – Concept, Feature and Advanced Systems Programs. Also, some of the sub systems have in turn divided their activities into sub processes. Hybrid Technology has only one process as one or both of the AE Coordinator and Sub System Director are involved all the time. Control Systems also appear to rely on one process as all or at least some of the Sub System Director, Section Mangers and AE Coordinators are involved in the different activities. Combustion has divided both roadmap creation and the project selection into four sub processes, which merges when the Sub System Director makes the first portfolio adjustment. Base Engine and Driveline have divided their roadmap level 3 and 4 creation into several sub processes, but for Base Engine the sub processes merges before the first project selection during AE Sub Programs creation, which also appears to be the case for Driveline.

6.4.4. How to improve AEPP

As shown, characteristically for AEPP are the large number of elements consisting of different stages, different activities, division into sub and sub-sub processes, and large amount of and different kinds of participators on different organizational levels, and division of responsibility among these participators. These different elements provide structure to VPT AE’s PPM approach. At the same time, AEPP is allowing for large amounts of flexibility. Every sub system have on the basis of their size (amount of people), situation, requirements and other factors, in different ways designed their own sub process (and in some cases sub-sub processes). They have also included different participators in different activities, distributed responsibility differently and selected different types of tools and evaluation criterions. Drawbacks and disadvantages identified by respondents during the interviews to a large extent focused upon the arbitrariness when trying to select projects and other issues and difficulties subjected to project selection activities. Also, concerns whether the best projects where selected and whether for example complex long-term projects are dismissed to often where discussed as well. A majority of the identified disadvantages might in fact be addressed by introducing new PPM tools (see section 6.3.7. and 7). However, benefits from the discussion activities have also been emphasized, for example getting constructive criticism and creating understanding and support for the project proposals within the unit. Conversely, identified advantages of AEPP appear to be generated by or be the structure and flexibility. Need for better distribution and use of deadlines and time plans appears to be the most frequent critique towards the current flexibility. This need (and critique) concerns both the general AEPP process on the highest level as well as within the sub systems’ sub processes and sub-sub processes (where it is their own responsibility to set these deadlines and time plans). The critique have for example concerned the RM1 deadline being set to late, to much work during the end of AEPP because of not having earlier deadlines, activities within the sub systems being held to late, and the need for group managers to schedule meetings with each other. Further on, more communication and feedback between the participators from different units, levels and processes appears to be needed. First, this has been said by participators themselves. Second, it was shown during the workshops held during the research project that

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the participators had much to speak about with each other. Third, it were also shown during the workshops that there are AEPP facts that the participators are not aware of (did not have the knowledge), but which could facilitate their work if they were aware of it. For example that RM1 are continuously updated and accessible by everyone, and that it is possible to apply for resources for more then one year at the time. Moreover, the participators in the different sub systems have limited knowledge about how other sub systems are working within AEPP. Even participators within a sub system can partly be unsure regarding how participators in other sub process in their own sub systems are working. This should reasonably mean that there is a lot of potential learning to be made from each other upon what best practices actually are. Therefore, more communication (including time for this), feedback and knowledge management (Alvesson et al., 2001; Grant, 2005) could be the right aspects to consider when aiming the improve AEPP. More and better distributed deadlines and time plans would be even more aspects to consider.

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7. TMET DESIGN, USE AND CONSIDERATIONS This section discusses how to design a TMET – Technology Merit Evaluation Tool – that can be used within AEPP. The starting-point for doing this is all the learning that has been made during the research project. However, it is not perceived as appropriate to develop a complete and ready to use tool, due to two main reasons. First, the amount, scope and nature of the empirical data that has been acquired during this thesis work are not perceived as sufficient. Second, the supervisor at Chalmers University of Technology has expressed concerns regarding the difficulty to create a deliverable of this kind that actually will be implemented and used in an organization like VPT. Therefore, the focus will rather be on recommendations regarding how VPT AE could design a TMET, as well as suggestions for how to implement and use the tool.

7.1. A Scoring model and a bubble chart to include in the TMET

Scoring models seems like the most appropriate starting-point for designing a TMET. First, scoring models appears to belong to the most, by the literature, frequently recommended PPM tools besides roadmaps. Second, a scoring model seems to fit into the AEPP as well as having potential to successfully address existing disadvantages, drawbacks and other issues perceived by managers who belongs to the core of AEPP. Third, the same managers have shown interest and enthusiasm for scoring models. The main usage of the TMET is thought to take place during the creation of AE Sub Programs when prioritizing project proposals. Scoring models can be said to fundamentally consist of five elements. The core foundation of scoring models is the criterions that are used for evaluating and rating the project proposals. In order to support these evaluation and rating activities and to introduce as much objectivity as possible, anchored rating scales with anchored scale phrases are being used. Moreover, to account for the different importance of different criterions, weightings of the criterions can be applied. The remaining parts of a scoring model are more a matter of administration: a paper or spreadsheet for entering the ratings into some kind of scoring or rating card; and an algorithm for transforming the project ratings into project scores and subsequently the project scores into a ranking list.

• Criterions • Anchored rating scales with anchored scale phrases • Weightings of criterions • Scoring/rating card • Algorithm for producing the ranking list

Criterions It was early concluded during the thesis work that it is the experienced and responsible people at VPT AE who are the ones that can determine what evaluation criterions that are most appropriate to use in AEPP. The second workshop was mainly devoted to letting and helping such managers identify and develop criterions. The actual result is illustrated in Figure 20. It was not decided whether and which of these criterions are main criterions or sub criterions. However, the criterions were organized and labelled, interpreted and explained with starting-

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point in the main criterions for R&D project selection recommended by Cooper (2006) – the five headlines in Figure 20. However, Cooper’s main criterions probability of technical and commercial success has been changed into technical and commercial risk respectively. The reason is mainly that this seems to be a more familiar terminology at VPT AE.

Figure 20: Evaluation criterions chosen by managers at VPT AE

Anchored rating scales, anchored scale phrases and weightings

Anchored rating scales, anchored scale phrases and weightings are important elements of a scoring model that should be developed by VPT AE themselves. This will be addressed in section 7.1.1. However, rating scales consisting of four or five grades appear to be the most appropriate. Scoring card

A scoring card should be used when rating the project proposals. Scoring cards can for example be based on papers or Excel spreadsheet documents. Scoring cards are the materialization of the scoring model and the following elements are examples of what to be included:

• Main and sub criterions (divided into categories and groups) • Weightings • The anchored scale with anchored phrases • Name of the project proposal and proposal providers • Ratings on criterions • Scores for each project displayed as percentages of maximum score • Names of the project proposals • The origins of the proposals (sub system, originator’s name, potential project leader’s

name etc.) could be visible or at least accessible trough extra documents

RREEWWAARRDD

STRATEGIC FIT AND IMPACT

• Criteria 1

• Criteria 2 STRATEGIC BENEFITS/LEVERAGE

• Criteria 3

• Criteria 4

• Criteria 5 REWARD (other aspects)

• Criteria 6

• Criteria 7

• Criteria 8

• Criteria 9

• Criteria 10

RRIISSKK

TECHNICAL RISK

• Criteria 11

• Criteria 12

• Criteria 13

• Criteria 14

• Criteria 15

• Criteria 16 COMMERCIAL RISK

• Criteria 17

• Criteria 18

• Criteria 19

• Criteria 20

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Algorithm for producing the ranking list

The project scores should be calculated by summing the project ratings in the risk and reward categories respectively. The two scores for each project should then be transferred into percentages of the theoretical maximum scores respectively. Bubble chart The criterions in Figure 20 have been organized into two categories in accordance to what SCA Tissue has done on their scoring model – risk and reward. Besides providing structure and guidance of how to interpret the criterions, another benefit would be the opportunity to produce a bubble chart from the scoring model’s output. This would be beneficial to have when communicating the scoring model’s ranking result and to achieving a balanced portfolio as discussed in earlier sections. Similarly to the SCA Tissue case, risk and reward appears to be most appropriate for VPT AE as well. The risk and reward categories make up the axes of the bubble chart. A project’s scores on these categories are used to place it along the axes to illustrate the assessed risk and reward it brings to the portfolio. Moreover, VPT AE should consider whether other dimension pairs are appropriate (see section 4.2.1.). Also, more than one type of bubble charts can be created from the scoring model’s output. The scorings in the reward (other aspects) group in the reward category could alone be combined with one or both of the risk groups in the risk category in order to create pure risk-reward charts. The bubble chart in Figure 14 that SCA uses shows the fundamental components of a bubble chart. Cooper et al. (2001) illustrates plentiful of other ways to design bubble charts. Additionally, the bubble chart can be divided into differently coloured zones. The project appropriateness would then be illustrated of what zone it belongs to.

7.1.1. The TMET needs to be complemented

The following parts and decisions needs to be developed and taken. Anchored rating scales and Anchored scale phrases The literature recommends that anchored rating scales and phrases should be included in scoring models. SCA Tissue has done this as well. The easiest way to do this is to start with the examples given by Cooper et al. (2001) and Davis et al. (2001) and then develop special designed versions for VPT AE. The anchored scale phrases should ideally be developed with enough care so that they can explain the meaning of their respective evaluation criterion (see section 7.2.2.). Weightings Weightings should be used in order to account for the difference in importance of the various evaluation criterions – for main criterions as well as sub criterions. Weightings could be developed trough careful consideration and assessment of all the criterions at the same time. Weightings can also be developed as recommended by Brenner (1994). He suggests that the

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pairwise comparisons tool described in section 4.1.2. should be used for determining the weights. The criterions should thus be ranked according to their importance instead of project proposals. Brenner suggests that when comparing the criterions, one should not only ask which criterion is more important but also how much more important. Moreover he recommends an anchored rating scale with the following phrases for doing these comparisons:

• Criteria A is equally important as Criteria B – 0 points to both • Criteria A is moderately more important then Criteria B – 1 point to A • Criteria A is strongly more important then Criteria B – 2 points to A • Criteria A is very strongly more important then Criteria B – 3 points to A • Criteria A is extremely more important then Criteria B – 4 points to A

When all criterions have been compared the weights are determined as the ratio between their individual score and the total sum of all scores. For example, if Criteria A received 40 points and the total sum of all criterion scores are 400 then Criteria A would be given 0.1 as weight. Finally, the team should make adjustments to the weightings if appropriate and not blindly believe in the output from the tool. Note that Brenner recommends this procedure for choosing evaluation criterions as well – the criterions with most points after having applied the pairwise comparisons tool would then be the criterions used in the scoring model. Sub criterions or no sub criterions?

Whether the criterions in Figure 20 should be main- or sub criterions and whether the group labels should be main criterions were not settled during the second workshop. Most literature concerning scoring models suggests that main and sub criterions should be used, however no explicit argument for this has been identified. The rationale for a division into main and sub criterions appear to be that this introduces structure and how to interpret the various criterions. On the other hand, group labels could be used to introduce structure and interpretations of the criterions instead of main criterions. However, when SCA Tissue assesses and rates the project proposals upon the main criterions they do not only consider the sub criterions – they consider all other relevant aspects that were not captured by the sub criterions as well. This is a strong argument for why VPT AE should use a division into main and sub criterions as it introduces flexibility into the tool to account for every project’s unique characteristics and circumstances not captured by the predetermined criterions.

7.2. Using the TMET

The scoring model and bubble chart should be used in the later part of AEPP in connection to the creation of AE Sub Programs, however it can be appropriate to have them in mind earlier during AEPP when developing proposals and roadmaps as the proposals will be assessed by the two tools later on. How the TMET should be used will be discussed next. Thereafter various aspects of importance to consider when using and developing the TMET will be outlined and discussed.

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7.2.1. How to use the TMET in AEPP

The following is a suggested procedure for how to use the TMET:

• First each sub system scores and prioritize all of their own project proposals with the scoring model during the AE Sub Programs stage

• As the sub systems will probably not get resources for all their proposals, the proposals on the lower part of the ranking list can be called unsure projects. The sub systems should identify these unsure projects to the best of their knowledge and send these proposals to a cross-functional group for further assessments.

• The cross-functional group reassesses and ranks the compilation of unsure proposals from the basis of the ratings and scorings already made within the sub systems.

• This group could contain AE Coordinators, Sub System Directors and representatives from Concept, Product Planning and even GAEC. However, including at least one member from each sub systems that participated in the first rankings would be advantageous in order to save time.

• The project selections made by each sub system and the cross-functional group can be presented and argued for towards GAEC as done previously

• Guidelines should be derived from the TMET to be used in the project proposal generation and roadmap creation activities during the first half of AEPP

These elements will be explained, motivated and discussed next. However, it should be stressed that this is just one way to use the TMET. For example, just adding the TMET to the current way of working and using it as support when selecting AE Sub Programs, regardless if projects are compared between sub systems or not, could show to be an appropriate way as well. Ranking the project proposals

The scoring model should first be used within each sub system when creating the AE Sub Programs. All the project proposals should simply be ranked and prioritized by using the scoring model. Each sub system has their own project portfolio and resources are allocated to each sub system. The budget frames are announced during quarter two which means that the sub systems now receive the first formal indication of how much resources they will get the next year. This appears to mean that the sub systems have a relatively good understanding of how much resources their sub system will receive. However, they do not know how much indirect resources they will receive due to other AE Sub Programs are willing to finance their proposals. As the sub systems have some understanding of how many resources they will receive then it is possible for them to identify a set of projects that they are very certain about receiving resources and acceptance for. This set would reasonably constitute the upper part of the ranking list. On the other hand, the sub systems will be relatively unsure whether they will receive resources for the lower part of the ranking list (see Figure 21, upper part).

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Figure 21: Each sub system ranks their project proposals with the TMET. Considering the preliminary

budget frames, the projects which are perceived as uncertain to receive founding are identified and

complied.

Each sub system should therefore take their lower/uncertain part of the ranking list (see Figure 21, lower part) and send it to a cross-functional group who ranks the uncertain projects (see Figure 22, upper part). Participators in this group should be from all the sub systems and preferably other relevant units, such as Concept and Product Planning. Sending all the projects to this group is by definition waste of time since the sub systems already are certain to receive resources for the upper part of their internal ranking list. Moreover, because of the amount of project proposals that enters the AE Sub Programs stage, the workload for the cross-functional group could be over whelming and the interest for using the tool might vanish if this group have to handle all proposals. The different groups at SCA Tissue that uses the scoring model handles up to approximately 15 business cases each time they go trough their project selection process. These project proposals appear indeed to be larger and more extensive than the proposals in the AE Sub Program stage. However, some sub systems handles up to 50 and 70 proposals respectively in this stage. 30 to 50 times five project proposals do not seem to be realistic for the cross-functional group to handle with a scoring model.

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Figure 22 : The TMET is used to rank the uncertain project proposals in Figure 21. The final project

proposals are presented and decided due to the budget frames by GAEC.

To exemplify the procedure outlined above; suppose that the sub system Base Engine receives 10 millions when the budget frames are announced. Depending on how good and important project proposals they have generated these 10 millions will later on during and after the review phases be adjusted to 10 ± X millions. Assume that Base Engine is very certain that X amounts to 2 millions. Assume also that Base Engine have project proposals enough for consuming 12 millions. This means that Base Engine are sure to receive resources for the highest ranked project proposals that consumes 66% (8 divided by 12) of the maximum resources that could be awarded. In turn, this means that Base Engine is unsure if they will get resources for the rest of their (34%) proposals, so they send these project proposals to the cross-functional group to be ranked together with the other sub systems “unsure” project proposals. If all project proposals consume the same amount of resources then 34% of 50 project proposals amount to 17 project proposals that are not guaranteed to receive resources. Five (five sub systems) times 17 amounts to 85 project proposals for the cross-functional group to handle in a scenario where these (explicit and implicit) assumptions are valid. However, note that the project proposals which this group are handling already have been rated and scored once with the scoring model. This should have a decreasing effect on the total time that the group needs.

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The empirical data are not enough for giving any more accurate assessment of how much projects proposals that will be sent to the cross-functional group if this procedure is adapted. VPT AE has to develop more specific rules and guidelines for which and how many projects that should be sent to and handled by the cross-functional group. However, if the cross-functional group finds an appropriate way to screen/filter the proposals in order to reduce the amount, then “too many” project proposals would not be a problem. The pairwise comparison or AHP tool described in section 4.1.2. might be useful for this screening task. The Techno economic chain illustrated in Appendix II.4. could facilitate the task as well by creating an overview of the projects and their implications. After the cross-functional group have done their part of the project selection activities then they can present their decision to the Sub System Directors if these not where part of the group in order to receive feedback and acceptance (see Figure 22, lower part). If the cross-functional group and Sub System Directors (after any adjustments) are satisfied with the rankings they can present these to GAEC. However, there are disadvantages with all the identified ways to do this. If the sub systems are only presenting their none-unsure projects then this would in some sense be waste of time as they by definition are sure to receive resources for these. If only the representatives from the cross-functional group are presenting their decision, then the internal competition for resources has been removed from the Review Phases. On the other hand, letting the sub systems design their common suggestion for how unsure projects should be ranked might be a better way to allocate resources to the unsure projects then having all of them individually trying to convince GAEC that their projects are the best ones. In fact, with respect to this, it might even be appropriate to include people from GAEC in this group. The competition that now takes place during the Review Phases would then be replaced by having to convince GAEC upon how to rate the project proposals with the scoring model and how to make subsequent adjustments of the output from the scoring model. The disadvantage with this approach would be the amount of people involved at the same time if it for example would be desirable to include Concept and Product Planning as well. Who should participate in the cross-functional group? Another major issue with the procedure outlined above is whether the participators in the cross-functional group will have enough knowledge and experience to make any contribution to the assessments and ratings of project proposals from other units. AE Coordinators are appropriate participators as it lies in their responsibility to be informed about and manage the entire set of project proposals for their own sub systems. They are also to some extent performing coordination with the other units and are perhaps familiar with the other technologies and existing competences. The Sub System Directors would certainly be good to include in the cross-functional group as they are the responsible ones and have experience and good overview of the operations. But they might not have enough time for that. The sub systems can still organize their internal project selection activities as they like. But the approach that Combustion uses appears to make the Sub System Director the only realistic candidate for the cross-functional group as he is the only one dealing with all project proposals.

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Representatives from Concept could be appropriate as the proposals in the end addresses challenges to realise the requirements in RM1 and RM2. Representatives from Product Planning might be appropriate as well since they are responsible for the most recent feature requirements and other product and market aspects. Guidelines for the early AEPP stages In alignment with SCA Tissue’s approach for project selection and the framework for project selection developed by Archer et al. (1999), the initial stages of AEPP should consider and be aware of that the scoring model will be applied later on. This can be done on the participators own initiative by having the scoring model’s criterions in mind when generating and developing project proposals and roadmaps. Conversely, Sub System Directors, Concept and GAEC could decide which of the scoring model’s criterions for the sub systems to consider in these early stages. Not only the evaluation criterions might be appropriate to consider, also the group labels in the scoring model might be useful together with the evaluation criterions or instead of them. The group labels cover most of the relevant factors without being too detailed which might be troublesome in these early stages. By having these guidelines in the initial stages already, it should be easier to develop project proposals with high chance to score high later on, and in this way assure that futile efforts not are undertaken. It will also be a way to generate self-provided feedback by the proposal developers as they can evaluate their proposals with the guidelines or the entire scoring model. Early feedback on proposals was stated as important during the interviews.

7.2.2. Aspects of importance to consider

There are several important aspects to consider when developing the remaining parts of the TMET as well as when using the TMET. These aspects are as follows:

• As many involved people as possible must understand the meaning of the evaluation criterions

• The TMET is a decision support tool – it is not making the decisions • The TMET need legitimacy and management support • A running-in period might be necessary • Follow-up is necessary • Access to important documents

Problems that can arise are as follows

• It takes too long time using the TMET • Design errors – wrong evaluation criterions • People are rating projects from their own unit too high • Project scores clusters close to or around the average score • People believe that AE projects should not be selected by tools • Keeping the unsure projects and sending the safe projects to the cross-functional group

These aspects and problems will be discussed next.

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As many involved people as possible must understand the meaning of the evaluation criterions

It is important that the users understand the meaning of the evaluation criterions. One of the requirements SCA Tissue stated when developing the project selection method was that, for the users, well know parameters should be used for screening the project proposals. Moreover, one contributing reason for why parts of VAC dropped the PPM tools they were using in the previous decade was due to unfamiliar concepts, definitions and terminology that were built into these tools. Also, it was obvious that the participators from VPT AE in the second workshop not interpreted specific evaluation criterions in the same manner. This should be considered and solved before the actual evaluation criterions are finally settled prior to the implementation effort. Involving participators from different sites and different units would be one way to assure that the evaluation criterions mirrors the common language at VPT AE. Furthermore, if the scoring model and/or some of the evaluation criterions will be used as guidelines in the earlier AEPP stages then it would be an even larger amount of people that needs to understand the terminology and the meaning of the criterions. As many of these people might not have management experience this might affect the requirements on the tool design compared to if only the main users where considered. Definitions or explanations of the criterions’ meanings could of course be enclosed as support documents. However, if these definitions needs to be read more than one time then this solution would have negative impact upon the user friendliness of the tool as well as the time required to use it – both in the AE Sub Program stage as well as in the earlier stages. The ideal solution would be if the criterions – the meaning as well as the terminology – are familiar to most people and that the anchored scale phrases are developed in a way that they are clear enough to reveal what the criterions actually are meant to measure. The TMET is a decision support tool – it is not making the decisions

This was stressed in the literature review already. However, it is important to emphasise this in order to prevent incorrect use. This is also important to communicate when implementing the TMET in the global VPT AE organization as a decision tool would most likely be treated with scepticism and perhaps even resistance. The TMET need legitimacy and management support

Similarly to the paragraph above, the TMET need to receive legitimacy for successful implementation and use. Two main factors that will affect the legitimacy can be identified. First, the involvement of many representatives and referral instances would have positive impact upon the legitimacy. Second, carefully communicating how the TMET should be used and why should have positive impact as well. Management support will have positive impact upon the legitimacy as well. Moreover, besides providing resources for developing and implementing the TMET, management needs also to allocate enough extra time/resources for using the TMET as this might consume more time than were needed with the previous approach.

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A running-in period might be necessary

Considering how many people and project proposals are involved in AEPP – and at different sites as well – a running-in period for the TMET could show to be appropriate. Follow-up is necessary

Similarly to the need of a running-in period, a follow-up period would certainly be needed as well. Besides evaluating the general outcome, the follow-up should examine if any of the six problems stated above and discussed below have occurred. Access to important documents

It would be advantageous if the TMET was complemented with necessary documents if not the users already have access to these. Such documents include:

• Strategy and business plan documents – as strategic evaluation criterions are used • Long-term product feature plans and target values – as the features are considered • Definitions of evaluation criterions – might be necessary but ideally not a real need

Problems that can arise It takes too long time using the TMET

This is one of the worst problems that could arise as it would have negative impact upon the willingness to use the tool as well as the output from using it. It can take too long time to use the TMET due to various reasons. First, there might be too many project proposals to handle – with respect to the actual tool design. Redesigning the tool or using screening methods could address this problem. The main criterions in the TMET could for example be used as screening criterions. Second, the scoring model might include too many evaluation criterions. It is strongly emphasizes by the literature (Cooper et al., 2001) and lecturers (Cooper, 2008, lecture) that not too many evaluation criterions are used as this have negative impact upon time spent. It is recommended that 5-9 main criterions and up to about 20 sub criterions are used – if sub criterions even are needed. However, the same literature recommends and therefore probably assumes that it is top management that uses the scoring model, which in turn implies more time constraints. AE Coordinators have not been judged as top management but whether Sub System Directors are equivalent to top management is not clear but it might be the case. Third, if people are not prepared when participating in scoring activities this could result in delays. Ideally people would have been performing the scoring by themselves before coming to a scoring meeting. Fourth, if the users do not fully understand the evaluation criterions this would demand for spending time reviewing the definitions. It could also result in discussions regarding the meaning of and how to interpret the criterions during the scoring activities.

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Design errors – wrong evaluation criterions

The importance of choosing criterions that people are familiar with and to develop effective anchored scale phrases have already been discussed. The scoring card and software interface should be user friendly as well. Perhaps more important are to identify and choose the right evaluation criterions that actually are the ones that can identify the most appropriate projects. Failing to do this implies that the resources allocated to VPT AE are not spent in optimal manner. How to actually determine if the wrong evaluation criterions have been used is a complex matter. Follow-up activities including feedback from tool users and other stakeholders, and open and self critical discussions would be one way. A particular aspect which might imply wrong evaluation criterions is if some of the criterions are overlapping or correlated with each other, implying that projects rated high on one criterion will automatically be rated high on others as well. People are rating projects from their own unit too high

This is a problem that SCA Tissue as well as the literature has expressed concern for. The solution has in both cases been to not compare project scores generated by different groups. The actual suggestion outlined above on how to use the TMET has been designed in order to eliminate the possibility for this problem to be realised. However, VPT AE should be observant for whether this starts to occur. Project scores clusters close to or around the average score

How to solve this was addressed in the literature review (section 4.1.1.). People believe that AE projects should not be selected by tools

There might be attitudes and believes among involved people that long-term technology development should not be decided by the use of tools. Stressing that the TMET are not making the decisions and how the TMET are helping mangers and engineers to decide what projects to select would be one way to handle such resistance. Keeping the unsure projects and sending the safe projects to the cross-functional group

Theoretically, when a sub system performs their initial project ranking there is an opportunity to turn there ranking list “up side down” afterwards. That is, keeping the unsure projects and sending the safe projects to the cross-functional group. The rationale for treating the unsure projects as safe projects, and the safe ones as unsure would be to get founding for all of them. The safe projects are likely to be ranked very high within the compilation of unsure projects; while the unsure projects that were kept and treated outwards as if they are much better then they actually are might then go trough the system with too less inspection as they are believed to be very good as they were kept from the beginning.

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7.3. Developing a more simple version of the TMET

Developing a simpler version of the TMET could be appropriate for two reasons. The complexity of the suggestion outlined above might be too high considering the amount of people and project proposals involved in AEPP. Also, it could show to be advantageous to use a simpler version during the running-in period. There are at least three different ways to modify the TMET:

• Not using anchored scale phrases • Using evaluation criterions as guidelines or screening questions • Pairwise comparisons or analytical hierarchy process

Not using anchored scale phrases

Much room in this report have been devoted to arguing for the use of anchored scale phrases. However, as these might demand for significant effort in order to be developed, it might be appropriate to announce a beta-version of the TMET without any anchored scale phrases. The reason for doing this would mainly be to get feedback upon whether the right evaluation criterions have been identified and chosen before developing the anchored scale phrases. On the other hand, no anchored scale phrases appear to imply more difficulties using the TMET which could result in negative experience from using the TMET. However, careful communication stressing that the TMET is not finished could eliminate this threat. Using evaluation criterions as guidelines or screening questions

The evaluation criterions could initially be used as guidelines (instead of a scoring model) trough the whole AEPP. In this way, involved people can start using the TMET as it suits them best. Hopefully they will realise the benefits with using a complete scoring model. This approach would generate feedback whether the right evaluation criterions have been chosen as well. Checklists or screening questions could be used instead of a scoring model. This means transforming the evaluation criterions into questions. The questions are then answered with a YES or NO. The feature criterions could be transformed into “does the project contribute to reaching the feature target levels?”. A NO on any question could imply that the project proposal is dismissed. However, this method is more suitable for screening than for ranking and selecting projects. Pairwise comparisons or analytical hierarchy process

The pairwise comparisons (PWC) or analytical hierarchy process (AHP) described in section 4.1.2. could be used instead of the scoring model. AHP are also based on evaluation criterions and produce a ranking list of project proposals. Also, the sub system Hybrid Technology has had positive experience from using the PWC tool. The PWC and AHP method might be a less

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time consuming way to handle large amounts of project proposals compared to a scoring model (Martino, 1995)8. Drawbacks are that the important aspects of a single project proposal are not analysed and discussed in a structured sequence, and the reasons for ratings are not documented. This means that it might be harder to create a complete understanding for different project proposals and argue for why they are appropriate and should be selected. However, PWC or AHP might be appropriate as screening tools if there are too many project proposals to be effectively handled with the scoring model.

7.4. Concluding remarks

From the description above it might appear as developing, implementing and using the TMET are rather complex activities. Conversely, designing and using scoring models and bubble charts should generally not be a very challenging matter. The description above attempts to show many aspects and options to consider and take in order to achieve the optimal design and use of the TMET. For experienced managers from VPT it might be quite obvious how to design and use the TMET after this description. But this does not imply that every manager would prefer the same design and use of the TMET. The relevant difference between VPT AE and what has been seen at SCA Tissue and in the literature about using scoring models and bubble charts in PPM is the extensiveness of VPT AE’s project selection approach. VPT AE appears to involve many more organizational units and sub units as well as individuals during the project selection process. Handling this matter might be the main challenge for VPT AE when designing and using the TMET – how to make it fit into this extensive and complex context. Anyhow, the current project selection approach at VPT AE is in its entirety very impressive and appears to be in line with best practice to a large extent. On the other hand, adding a TMET is likely to take the efforts and performance to an even higher level.

8 Martino suggest that PWC or AHP should be used instead of scoring models for large amounts of projects as a scoring model can be quite time consuming. However, theoretically, this would not be a correct reasoning for too large amounts of projects as the time consumed by the PWC tool is proportional to N2 (N = amount of projects ) while the time consumed by a scoring model is proportional to N.

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Management, Sep-Oct, Vol. 37, Iss. 5; pg 38-42. Cooper, R. G., (2006): Managing Technology Development Projects, Research Technology

Management, Nov-Dec, Vol. 49, Iss. 6; pg 23-31. Cooper, R. G., Edgett, S. J., Kleinschmidt, E. J., (2002a): Optimizing the Stage-Gate Process: What Best-Practice Companies Do – I, Research Technology Management, Sep-Oct, Vol. 45, Iss. 5; pg 21-27. Cooper, R. G., Edgett, S. J., Kleinschmidt, E. J., (2002b): Optimizing the Stage-Gate Process: What Best-Practice Companies Do – II, Research Technology Management, Nov-Dec, Vol. 45, Iss. 6; pg 43-49. Davis, J., Fusfeld, A., Scriven, E., Tritle, G., (2001): Determining a Project’s Probability of success, Research Technology Management, May-Jun, Vol. 44, Iss 3; pg 51-57. Gindy, N. N. Z., Cerit, B., Hodgson, A., (2006): Technology Roadmapping for the Next Generation Manufacturing Enterprise, Journal of Manufacturing Technology Management, Vol. 17, Iss 4; pg 404-416. McMillan, A., (2003): Technology Roadmapping: Roadmapping – Agent of Change, Research Technology Management, Mar-Apr, Vol. 46, Iss. 2; pg 40-47. Olleros, F. (1986): Emergent Industries and the Burnout of Pioneers, Journal of Product

Innovation Management, Vol. 1; pg 5-18. Oskarsson, C., Sjöberg, N., (1994): Technology Analysis and Competitive Strategy – the Case of Mobile Phones, Technology Analysis and Strategic Management; Vol. 6, Iss 1; pg 3-19.

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Phaal, R., Farrukh, C., Mitchell, R., Probert, D., (2003): Technology Roadmapping: Starting-up Roadmapping Fast, Research Technology Management, Mar-Apr, Vol. 46, Iss. 2; pg 52-58. Rzasa, P. V., Faulkner, T. W., Sousa, N. L., (1990): Analysing R&D Portfolios at Eastman Kodak, Research Technology Management, Jan-Feb, Vol. 33, Iss. 1; pg 27-32. Sheasley, W. D., (2000): Taking an Options Approach to New Technology Development, Research Technology Management, Nov-Dec, Vol. 43, Iss. 6; pg 37-43. Steele, L. W., (1988): Selecting R&D Programs and Objectives, Research Technology

Management, March-April, Vol. 31, Iss 2; pg 17-36. Whalen, P. J., (2007): Strategic and Technology Planning on a Roadmapping Foundation, Research Technology Management, May-Jun, Vol. 50, Iss 3; pg 40-51. Books and reports Aaker, D. A., (2008): Strategic Market Management – Eight Edition; New York: John Wiley & Sons, Inc. ISBN: 9780470056233 Archer, N. P., Ghasemzadeh, F. (1996): Project Portfolio Selection Techniques: A Review and a Suggested Integration Approach. Innovation Research Working Group Working Paper

No. 46. McMaster University. Boer, F. P., (2004): Technology Valuation Solutions, New Jersey: John Wiley & Sons, Inc. ISBN: 0471654671 Bryman, A., Bell, E., (2007): Business research methods; Oxford: Oxford University Press. ISBN: 9780199284986 Christensen, C. M., (1997): Innovator's Dilemma – When New Technologies Cause Great

Firms to Fail; Boston: Harvard Business School Publishing. ISBN: 9780875845852 Christensen, C. M., Raynor, M. E., (2003): The Innovators Solution – Creating and

Sustaining Successful Growth; Boston: Harvard Business School Publishing. ISBN: 9781578518524 Cooper, R. G., Edgett, S. J., Kleinschmidt, E. J., (2001): Portfolio Management for New

Products – Second Edition; Perseus Books Group. ISBN: 9780738205144 Dawidson, O., (2006): Project Portfolio Management – an organising perspective. Göteborg, Sweden: Department of Technology Management and Economics; Operations Management and Work Organisation, Chalmers University of Technology.

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EIRMA, (2002): Project Portfolio Management – WG59 Report. Paris, EIRMA Working Group Reports. Faijerson, K., Torring, K., (2008): Implementing Roadmapping a SKF – A pilot study at the

Food & Beverage segment. Göteborg, Sweden: Department of Technology Management and Economics; Operations Management and Work Organisation, Chalmers University of Technology. Grant, R. M., (2005): Contemporary Strategy Analysis – Fifth Edition; Oxford: Blackwell Publishing Ltd. ISBN: 9781405119993 Patterson, M. L., (2005): ‘New Product Portfolio Planning and Management’, in: Kahn, K. B., (editor): The PDMA handbook of new product development – Second edition; New Jersey: John Wiley & Sons, Inc. 2005. Page: 249-262. ISBN: 9780471485247 Martino, J. P., (1995): Research and Development Project Selection; New York: John Wiley & Sons, Inc. ISBN: 9780471595373 Remenyi, D., Williams, B., Money, A., Swartz, E., (1998): Doing research in business and

management – An introduction to process and method; London: Sage Publications. ISBN: 9780761959496 Roussel, P. A., Saad, K. N., Erickson, T. J., (1991): Third Generation R&D: Managing the

Link to Corporate Strategy; Boston: Harvard Business School Press. ISBN: 9780875842523 Sandgren, E., Sjöström, J., (2005): R&D project portfolio management: a multiple case study

of six Swedish companies. Göteborg, Sweden: Department of Technology Management and Economics; Operations Management and Work Organisation, Chalmers University of Technology. Schilling, M. A., (2008): Strategic Management of Technological Innovation – Second

Edition; New York: McGraw-Hill/Irwin. ISBN: 9780071259422 Tidd, J., Bessant, J., Pavitt, K., (2005): Managing Innovation: Integrating Technological,

Market and Organizational Change; Chichester: John Wiley & Sons, Ltd. ISBN: 9780470093269 Thamhain, H. J., (2005): Management of Technology – Managing Effectively in Technology-

Intensive Organizations; New Jersey: John Wiley & Sons, Inc. ISBN: 9780471415510 Tushman, M., Anderson, P. C., (2004): Managing Strategic Innovation and Change – A

Collection of Readings; New York: Oxford University Press, Inc. ISBN: 9780195135787

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Tushman, M., Andersson, P. and O`Reilly, C. (1997): Technology Cycles, Innovation Streams and Ambidextrous Organizations: Organization Renewal Through Innovation Streams and Strategic Change, in Tushman, M. and Anderson, P. Managing Strategic

Innovation and Change: A Collection of Readings, Oxford University Press, New York, pp 3-23. Utterback, J. M., (1994): Mastering the Dynamics of Innovation – How Companies can Seize

Opportunities in the Face of Technological Change; Boston: Harvard Business School Publishing. ISBN: 9780875847405 Websites and lectures

Cooper, R. G., (2008, 13 of Mars), Champs Executive Seminar Series – CHESS: Pathways to

Profitable innovation, Chalmers University of Technology, Holmén, M., (2007): Interviews and methodology Feb 1 2007.pdf ; MEI Project course: Göteborg, Chalmers University of Technology. A) Volvo Powertrain : Volvo Group - Global -; (11 April 08)

<http://www.volvo.com/group/global/en-gb/volvo+group/our+companies/volvopowertrain/>

B) Volvo Powertrain - the Group’s engine - Volvo Annual Report 2006 -; (11 April 08)

<http://www3.volvo.com/investors/finrep/ar06/eng/volvopowertrain/volvo_powertrain___.html>

C) New Product Development Glossary; (30 March 08) <http://www.pdma.org/library/glossary.html>

D) Home: Volvo Aero - Volvo Global; (20 November 07): (11 April 08) <http://www.volvo.com/volvoaero/global/en-gb/>

E) Volvo Technology: Volvo Group - Global -; (03 March 08)

<http://www.volvo.com/group/global/en-gb/Volvo+Group/our+companies/volvotechnologycorporation/>

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Appendix I: Interview guide This interview guide was used when interviewing representatives from the Concept and the five sub systems. INTERVIEW GUIDE – Technology Selection in Early Phases Purpose: Understand how the project selection process are carried out within VPT AE Respondent: Can you describe your self and your background? Position in the organization: Responsibility and daily tasks: Number of years in the current position: A. Opening questions

1. To what degree do your unit follow the Advanced Engineering Planning Process (AEPP)? 2. How are Roadmap Level 1 – the 10 year project plans – created and what decides the final content?

o 2.1 Who are involved and who have influence? How are the responsibility and tasks distributed? How and when are these persons involved? Does the group or forum have a name?

o 2.2 What activities are included in the creation process? Order of activities?

o 2.3 What kind of information, data or other kind of input is used during the creation? o 2.4 What kind of communication takes place between the involved during the process

and what does it include?

o 2.5 Are any methods or tools during the creation or to support the process?

o 2.6 Is it done the same way every year? o 2.7 What advantages and disadvantages come with this approach? o 2.8 Is there something regarding the approach that is unique for your unit?

3. How is Roadmap Level 2 created? What determines the final result? What decides what enters the different technology scenarios and how these scenarios are designed?

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o 3.1 Who are involved and who have influence? How are the responsibility and tasks distributed? How and when are these persons involved? Does the group or forum have a name?

o 3.2 What activities are included in the creation process? Order of activities?

o 3.3 What kind of information, data or other kind of input is used during the creation? o 3.4 What kind of communication takes place between the involved during the process

and what does it include?

o 3.5 Are any methods or tools during the creation or to support the process?

o 3.6 Is it done the same way every year? o 3.7 What advantages and disadvantages come with this approach? o 3.8 Is there something regarding the approach that is unique for your unit?

4. Is the creation of Roadmaps Level 3 and 4 and AE Sub Programs separated? 5. How are Roadmaps Level 3 and 4 created (and AE Sub Programs) and what decides the final content?

o 5.1 Who are involved and who have influence? How the responsibility and tasks are divided? How and when are these persons involved? Does the group or forum have a name?

o 5.2 Which activities are included in the process? Order of activities?

o 5.3 What kind of information, data or other kind of input is used during the process? o 5.4 What kind of communication takes place between the ones involved during the

process and what is the content?

o 5.5 Are any methods or tools used within the process or the support the process?

o 5.6 Is it done the same way each year? o 5.7 What advantages and disadvantages exist? o 5.8 Is it something that is unique for your unit?

6. How is AE Sub Programs created and what determines the final result?

o 6.1 Who are involved and who have influence? How the responsibility and tasks are divided? How and when are these persons involved? Does the group or forum have a name?

o 6.2 Which activities are included in the process? Order of activities?

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o 6.3 What kind of information, data or other kind of input is used during the process? o 6.4 What kind of communication takes place between the ones involved during the

process and what is the content?

o 6.5 Are any methods or tools used within the process or the support the process?

o 6.6 Is it done the same way each year? o 6.7 What advantages and disadvantages exist? o 6.8 Is it something that is unique for your unit?

7. What determines which project proposals enter and do not enter Roadmaps Level 3 and 4? What determines which project proposals are included in AE Sub Programs? 8. How are the project proposals and programmes created? 9. Before the projects enter the roadmaps and AE Sub Programs, are they evaluated in the same manner? 10. How are the project proposals evaluated before Roadmaps Level 3&4 (and AE Sub Programs) are created?

o 10.1 What are you considering when evaluating the project proposals? o 10.2 What factors and criterions are considered?

o 10.3 Who are involved and has influence? How and when are the involved?

o 10.4 What kind of information is used during the evaluation?

o 10.5 How does the various factors’ importance vary during the evaluation activities?

o 10.6 Are any tools or methods used for evaluating the projects?

o 10.7 Are the projects evaluated in the same way, or does it differ occasion to occasion,

or from project to project?

o 10.8 What determines if a project is selected during the evaluation activities?

o 10.9 What advantages and disadvantages with the current approach for project evaluation can be identified?

o 10.10 Is there anything unique for your unit?

11. How are project proposals evaluated before AE Sub Programs have been created?

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o 10.1 What are you considering when evaluating the project proposals? o 10.2 What factors and criterions are considered?

o 10.3 Who are involved and has influence? How and when are the involved?

o 10.4 What kind of information is used during the evaluation?

o 10.5 How does the various factors’ importance vary during the evaluation activities?

o 10.6 Are any tools or methods used for evaluating the projects?

o 10.7 Are the projects evaluated in the same way, or does it differ occasion to occasion,

or from project to project?

o 10.8 What determines if a project is selected during the evaluation activities?

o 10.9 What advantages and disadvantages with the current approach for project evaluation can be identified?

o 10.10 Is there anything unique for your unit?

12. What are the various product features which are supposed to drive the AE operation as a whole and your function in particular? Are these being used? 13. What determines if the projects that are chosen during the first half of AEPP survive the remaining part of the year and finally enters Global AE Plan? Who are involved?

o 13.1 How are AE Project Plans created?

o 13.2 How are AE Plan Review 1 and 2 carried out? o 13.3 How is the cost estimates made during the end of Q3?

o 13.4 How is Global AE Plan created? o 13.5 To what extent are the projects plans, programs and concepts adjusted or changed

during Q3 and Q4 and before Global AE Plan are decided?

o 13.6 What advantages and disadvantages of the current approach can be identified 14. What do you want to achieve by selecting the projects that are selected? 15. Is there any AE projects that do not go trough AEPP but are carried out anyway? 16. How are new participators introduced to AEPP?

B. Specific questions from PPM and project evaluation theory

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21. What is done in order to maximize the value of the project portfolio? o 21.1 How close to the maximum level do you usually come?

22. What is done in order to create a balanced portfolio? 23. What is done in order to create a link between business strategy and the project portfolio? 24. Which of these goals are most important? 25. How are managing and documenting project proposals that have been suggested long before it is time for roadmap creation? 26. Are you using any specific activities like pre-screening or screening? C. Project proposal evaluation 27. What is done in order to assess the uncertainty or risk inherent to project proposals? Are there generally much uncertainty or risk issues considered during the discussions and project evaluations? 28. What characterises a project with high uncertainty or risk? What are usually the reasons for high uncertainty or risk? 29. What is done in order to assess ”probability of technical success”? What is then considered?

o Technology or project complexity o The internal knowledge base and skills – core competences o Availability of people and other resources o Degree of internal competition for people and other resources o Degree of internal commitment o Technical gap – difference compared to previous solutions o Performance of external technology and possibility to make use of this o Possibility to manufacture the final components or products o Incremental vs radical innovation

30. What is done to assess ”probability of commercial success”? What is then considered?

o Market need o Market maturity o Market size o Product/component life cycle (length) o Competitive intensity and its nature o Opportunities for patent advantages o Scope of and potential for commercial applications, and whether the organizations are

have appropriate capabilities for develop, promote and distribute these o Commercial assumptions – assumptions about the markets and industries o Availability of raw materials and suppliers o Regulations, politics, economics, social and environmental impacts

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31. What is done to assess strategic fit and impact?

o Fits with current business strategy o Impact upon the future businesses o Source for growth o Durability of competitive benefits and advantages o Potential for internal and external synergies o Contributing to the image and reputation of the organization

32. How is future financial rewards assessed?

o Contributing to profitability o Payback period o Time to commercial start up

33. How is costs calculated or evaluated? 34. What is considered when balancing the portfolio?

o Risk vs Reward o Importance vs Ease o Market segments vs Strategic purpose o Market and technology risk o Markets, products, technologies o Project types o Short-term vs long-term o Resource or capacity use

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Appendix II: Additional theory and methods to consider for project selection This section describes more theories, models and methods that have been recognized by PPM literature as advantageous to us in PPM.

A.II.1. Financial tools

Financial tools are the most commonly used tools, 77,3 % of businesses in one study used one or more of these for PPM (Cooper et al., 2001). Net Present Value (NPV) is one of the most commonly used financial tool (Boer, 2004; Cooper et al., 2001; Martino, 1995; Schilling, 2008). NPV calculates the present value of future cash flows subtracted with the project cost, discounted for the payback period, risk and the time value of money. A basic variant of NPV is illustrated in Figure 23. Productivity Index refers to the NPV-value for a project divided by the total amount of resources that still have to be spent on that project. Ranking projects by Productivity Index maximizes the project portfolio value with respect to a given budget (Cooper et al., 2001).

∑=

−

+

=

n

tt

t Cr

CNPV

10)1(

Figure 23: Formula for Net Present Value

Another group of tools are based on a breakdown of projects into different stages that can be estimated to have different probabilities for different degrees of successful outcomes – Decision Trees (Boer, 2004; Cooper et al., 2001; Martino, 1995; Rzasa, 1990). Figure 24 illustrates a basic example of one such tool. Project A consists of project B and project C, where Project B has to be completed before Project C. Project B and C have been given an probability estimate of their two possible out comes – high and low performance. Project A therefore has four different outcomes that can be calculated. If some kind of value estimations can be made for project A’s four possible outcomes, than the expect value can be calculated. Martino (1995) discusses how probability estimates can be generated in a somewhat more controlled and thoughtful manner. Boer (2004), Schilling (2008) and Sheasley (2000) discusses how probabilities and risks can be accounted for by using Real Options methods, presumed that technology and product development can be justified in the same manner that financial call options are justified.

t - time of the cash flow n - total time of the project r - discount rate Ct - the net cash flow (the amount of cash) at time t. C0 - the capital outlay at the beginning of the

investment time (t=0)

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Figure 24: Illustration of a Decision tree tool

A.II.2. S-curves and technology cycles

It is widely recognized that the pattern of technological evolution often resembles S-curves, and that this phenomenon has significant impacts on industries and individual firms, which implies that this development pattern should be taken into consideration (Martino, 1995; Olleros, 1986; Roussel, 1991; Schilling, 2008; Steele, 1988; Tidd et al., 2005). More specifically, it is the technology performance as a function of invested effort that resembles s-shaped curves, as illustrated in Figure 25. However, S-curves are often plotted with performance as a function of time, but Schilling (2008) argues that this is only correct if the effort is a constant function of time.

Figure 25: Technology developments often resembles S-curves

P = 0.8

P = 0.7

P = 0.3

P = 0.2

P = 0.6

Project B Start

Total Probability

Low Performance

High Performance

P = 0.4

Project C Start

P = 0.48

P = 0.12

P = 0.12

P = 0.28

Value of Project A

10

6

5

1

Expected Value of Project A = 0.48x10 + 0.12x (6 + 5) + 0.28x1 = 6.4

(Natural) Limit of Technology A

Technology A Technology B

Technology Performance

Effort / Time

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The reason for the s-shape is that initially there are no or very little knowledge about the specific technology which results in small advances. As more knowledge are acquired then the improvements accelerates. But eventually as more and more improvements have been made, the natural limits of the technology are approached which makes it impossible to hold on to the previous pace and fewer and smaller improvements are made (Schilling, 2008). Another consequence of the S-curve pattern is that incumbent firms often neglect technologies that are in the beginning of the S-curve evolution as the performance often are lower and more effort are necessary to achieve advancements. However, as the first technology reaches its upper performance limit, the newer technology might continue to increase its performance due to a higher upper limit, which in turn might have severe consequences for a firm’s competitiveness (Schilling, 2008). It is often recommended that mangers can predict future technology developments by employing the S-curve concept combined with relevant information, and hereby anticipate how many resources to spend on different technologies, present as well as emerging ones. However, Schilling (2008) argues that there are significant drawbacks with the S-curve model as a prescriptive tool as, for example, the true upper limits are seldom known, and unexpected market changes or new complementary technologies can shorten or extend the life-cycle of a technology. Moreover, yet another consequence of s-shaped technology development patterns are that technological change is cyclical, which in turn implies that what the current successful innovation strategies are, changes periodically. What the future successful innovation strategies will be can therefore be anticipated as history is repeated over and over again (Schilling, 2008; Olleros, 1986; Christensen, 1997; Utterback, 1994, Tushman et al., 1997, 2004).

A.II.3. Technology categorization

Roussel et al. (1991) suggest that categorization of technologies’ technological maturity from an S-curve perspective can help to establish or anticipate aspects such as:

• Uncertainty and risk • Reward • Competitive activity • Probability of success • Management expectations • Accountability • Appropriate R&D strategies • Marketing and investment strategies

Another way to categorize technologies, besides their technological maturity, is according to their competitive impact. However, there are correlations between technological maturity and competitive impact. By categorizing technologies according to their competitive impact, insights about what the appropriate R&D decisions are – including what projects to select –can be generated. Figure 26 illustrates how technologies can be categorized with respect to competitive impact (Gindy et al., 2006; Roussel et al., 1991; Steele, 1988). The categories are

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defined in Figure 26. Pacing technologies usually become key technologies which in turn eventually become base technologies.

Descriptor Competitive Impact

Base technology

Must have technologies

Widely exploited by competitors

Provide small competitive advantage

Key technology Critical for competitive advantage and differentiation. Well

established in both products and processes

Pacing technology

Potential to change the rules of competition. Probable

future differentiator and key technology. Typically under

experimentation by one or more competitors. Not yet used

in products

Emerging technology Early research state, possibly emerging into other industries.

Competitive impact is unknown

Pacing � � Key � � Base

Figure 26: Technology categorization according to their competitive impact

This specific categorization can for example be used when designing bubble diagrams (Cooper, 2001; Gindy, 2006; Roussel, 1991), see Figure 27. Figure 28 shows a similar bubble chart based on technology categorizations regarding market and company novelty.

Figure 27: Bubble chart combing competitive impact of technologies with current or desired competitive

position.

Emerging technology

Pacing technology

Key technology

Base technology

Current or desired competitive position

Weak

Medium

Strong

Technology type

Project A

Project B

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Figure 28: Bubble chart mapping technology projects with respect to the market and company novelty

they imply.

Yet another technology category that is recommended to consider when managing project portfolios are disruptive technologies (Gindy, 2006). Disruptive innovations (technologies, products, services, processes, business models etc.) are often neglected by incumbent firms when they emerge, while at the same time having huge potential for changing the rules of competition with devastating consequences for the incumbents. Moreover, disruptive innovations are closely related to or involving the S-curve phenomenon (Aaker, 2008; Christensen, 1997; Christensen et al., 2003; Gindy et al., 2006). Two kinds of disruptive innovations have been identified. The drive to service the most profitable customers provides an opening for low-end disruptive innovations to emerge and establish. Innovations that are easier and less expensive to acquire and use compared to the present solution can be targeted to low-end customers that are “overserved” by the incumbents and would be satisfied with a less expensive and less sophisticated offer. If the incumbents ignore the loss of the less profitable low-end customers then the innovation can get a foot hold and, as it climbs upwards the S-curve, eventually conquer more and higher segments from the incumbents firms if these do not manage to catch up with the developments – hereby becoming a low-end disruptive innovation (Aaker, 2008). The second kind of disruptive innovations are new-market disruptive innovations. These are similar to the low-end disruptive innovations, but they are instead targeting new markets and/or none customers who do not buy the present solutions as these are considered to expensive or complex, or buy much less then they would like to as the buying process is inconvenient (Aaker, 2008).

New to the world

New to the company

Known to the

company

Market newness

Known to the

company

New to the company

New to the

world

Technology newness

Project A

Project B

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Disruptive innovations have emerged and changed markets and industries of various kinds. The following are example of industries that have been exposed to disruptive innovations and/or were based on disruptive innovations: copiers; cameras; steel; cars; airline flights; computers; disk drives; personal computer manufacturing, distribution, and purchasing; retailing; book retailing; banking; ocean transports (steamships disrupting sailing ships) (Aaker, 2008; Christensen, 1997; Christensen et al., 2003).

A.II.4. Techno economic chain

Yet anther model used for making strategic technology decisions, including project selection decisions, are what we refer to as the Techno economic chain. This method conceptually links technologies, technical designs and R&D activities to an anticipated market impact, benefits and rewards. Different authors use different terminology and somewhat different perspectives when designing this model, but it is common to use a four step design. Oskarsson et al. (1994) uses this model to show how different kinds of technologies will have different kind of strategic impact on a firm’s competitiveness. This is illustrated in Figure 29. The four stages that constitute the chain are: 1. Technologies; 2. Performance dimensions; 3. Customer utility dimensions; and 4. Business impact. This can be compared with the terminology used by Sheasley (2000): 1. Technical design; 2. Properties; 3. Benefits; and 4. Business impact. While Rzasa et al. (1990) name the stages as follows: 1. R&D tasks; 2. Intermediate goals; 3. Features; and 4. Product performance.

Figure 29: Relationships between technologies, product characteristics, cost price, customer utilities and

competitive strategies (Oskarsson et al., 1994). Technologies affect cost, performance and customer utilities which influence the potential business impact and strategy.

A practical application of the model is also demonstrated by Oskarsson et al. (1994) and is shown in Figure 30. It can be seen how different technologies have impact on different performance dimensions, and in turn, which performance dimensions that have impact on customer utility dimensions – the product features. The connection with Figure 29 can be seen as the blue technologies only drive performance, while the orange technologies drive

Performance-driving

technologies

Cost & performance-

driving technologies

Cost leadership

strategy

Cost leadership and

differentiation strategy Price

Customer utilities

Cost

Performance

Cost-driving

technologies

Differentiation strategy

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performances while at the same time decreasing costs, whereas the green technologies only lowers costs.

Figure 30: Connections between customer utilities, cell phone performance and underlying technologies

(adapted from Oskarsson et al., 1994)

Technical

design Properties Benefits

Business impact

Depth

Soundness of

ideas.

Level of

understanding

of underlying

principles.

Magnitude of

potential

advance in

performance.

Understanding

of structure /

property

relationships

Importance of

benefits in cited

markets.

Understanding

of correlation of

properties and

benefits.

Strength of

differentiation

performance.

Understanding

of market-

trends / drivers

/ value chain.

Breadth

Flexibility.

Scope of design

parameters.

Range of

properties

affected.

No. of benefits

that could be

enhanced.

Knowledge of

competitive

technologies.

Number of

markets cited.

Size of markets.

Market

participants and

structure.

Figure 31: A scoring model based on the Techno economic chain. Eight criterion dimensions are used to

evaluate projects (adapted from Sheasley, 2000)

Sheasley (2000) takes the application of the Techno economic chain one step further as he develops it into a complete scoring model – a somewhat different scoring model. Using this method, projects are still rated on criterions (with corresponding anchored scale phrases).

Analogue radio technology

Battery technology

Display technology

Analogue signal processing

Analogue VLSI-design

Design for manufactur-ability and assembly

VLSI-production

Assembly technology

TECHNOLOGIES PERFORMANCE

DIMENSIONS

CUSTOMER UTILITY

DIMENSIONS

Signal-to-noise ratio

Operating time

Size (Volume)

Weight

Cost

Voice quality

Accessibility

Portability

Reliability

Price

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However, the criterions are developed from and categorized into the four different stages in the Techno economic chain. This scoring model is shown in Figure 31.

A.II.5. A more quantitative scoring model

The previous discussions in this report have concerned scoring models whose inputs are mainly based upon qualitative managerial assessments of the project proposals characteristics along the evaluation criterions. For criterions like market size or expected sales, if the quantitative figures were know for these factors then they would have been transformed into qualitative ratings. Martino (1995) illustrates a scoring model that can take quantitative figures, such as market size or investment cost as inputs, for all or some of the evaluation criterions. However, this scoring model, similarly to the financial models, appears to be too advanced compared to the quality of the input data that is available or can be justified to be obtained. The evaluation criterions are in this model replaced by three different variables: Overriding variables – represent those project characteristics that if absent or to high, then the project is scored as worthless Tradable variables – represent those project characteristics that can be traded one for another, in the sense that one are willing to sacrifice some or all of one in order to get more of another Optional variables – are those that alter the score if present, and do not alter the score if absent The following example exemplifies how to use the scoring model: Overriding variables T = Probability of technical success C = Cost Tradable variables M = Present or expected market size S = Potential market share Optional variable E = External founding The project score is obtained by multiplying, dividing, adding and weighting these variables as in the following expression:

The advantages of this method compared to the qualitative scoring models recommended by Cooper (2001) and others appear to be marginal. The evaluation criterions have been replaced

T3/2 (0.33M + 0.67S) 2 (1 + 0.8E) 1/2

C

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by three different kinds of variables, but their functions can more or less be given to the evaluation criterions in the qualitative scoring models as well. Quantitative data can be used as input but the value added from this appears to be low as managers themselves can transform quantitative data into qualitative data. On the other hand, as quantitative data are allowed to be used as input this demands for complex and lengthy rescaling transformations of the quantitative data so that all variables range within the same magnitudes. This has to be done in order to avoid undesirable effects when the variables vary, as small changes of large numbers would have a higher impact then small changes of small numbers.

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Appendix III: Project evaluation and selection criterions This section is a compilation of project evaluation and selection criterions identified in the literature. Criterions recommended by different authors have been grouped under the main criterions recommended by Cooper (2006). View section 4.1.3. for a more condensed compilation. 1. Business Strategy Fit and Impact Cooper (2006)

Fit Impact (importance) Dawidson (2006)

Strategic fit (consistency with the articulated strategy) Strategic contribution (which projects have to be pursued in order to realise the

strategy and achieve the goals set) Strategic priorities (ensuring that the break-down of spending reflects the

strategic priorities – more suitable for bubble charts and sub portfolio methods) Thamhain (2005)

Consistency with business plan Project business follow-on Resource availability Martino (1995)

Drawing upon core competencies “Filling / reducing” a sever “gap / weakness” in the “strategic position or realization of strategy” Potential to justify the project trough ‘Real options theory’ (high potential future

payoff with relatively small initial investment) Targeting specific contracts EIRMA (2002)

Alignment with business or corporate strategy

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Impact on strategies 2. Strategic Benefits/Leverage Cooper (2006)

Proprietary position (intellectual property advantages and issues) Platform for growth Durability (technical and marketing) Synergy with corporate units Martino (1995)

Potential for future improvements of the technology (compared to alternative or emerging technologies) Thamhain (2005)

Impact on other business activities 3. Probability of Technical Success Cooper (2006)

Technical Gap Project Complexity Technological skill base Availability of people and facilities Thamhain (2005)

Technical complexity Product life cycle Organizational readiness and strength Martino (1995)

Probability of technical success Existence of a product champion Competence in the required disciplines

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Degree of internal commitment Degree of internal competition for resources Intrinsic merit of research Stage of innovation Source of project proposal Davis et al. (2001) and EIRMA (2002)

Proprietary position Competencies/skills Technical complexity Access to external technology Manufacturing capability Sheasley (2000)

Soundness of ideas (regarding technical design) Level of understanding of underlying principles (regarding technical design) Flexibility (regarding technical design) Scope of design parameters Magnitude of potential advance in performance (regarding technical properties) Understanding of structure/property relationships Range of properties affected Understanding of correlations of properties and benefits Number of benefits that could be enhanced Possible benefits compromises 4. Probability of Commercial Success Cooper (2006)

(in the case of technology development projects with potential for new products)

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Market need Market maturity Competitive intensity Commercial applications development skills Commercial assumptions Regulatory and political impact Thamhain (2005)

Market share Sales volume Product life cycle Organizational readiness and strength Martino (1995)

Degree and nature of anticipated competition for the product resulting from the project Size of the market for the product Probability of market success for the product Length of product life cycle Availability of raw materials that would be required to manufacture the product Regulation of effectiveness Safety regulation of the industry using the product or process Economic regulation of the industry using the product or process Regulations regarding:

� product safety to users � workplace safety during manufacture � environmental hazards, disposability, and recyclability

Davis et al. (2001) and EIRMA (2002)

Customer/Market need

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Ability to exploit Market/Brand/Image strengths Distribution channels Customer strengths (business to business) Raw materials supply Environment, health and safety Sheasley (2000)

Importance of benefits in target markets Understanding of correlations of properties and benefits Number of benefits that could be enhanced Possible benefits compromises Knowledge of competitive technologies Strengths and weaknesses of competitive technologies Strength of potential performance differentiation in target markets Understanding of market trends Understanding of market drivers Understanding of value chain Number of target markets Size of target markets Market participants and general market structure Understanding of entry barriers 5. Reward Cooper (2006) Contribution to profitability Payback period Time to commercial start-up

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Martino (1995)

Labor hours Purchase of materials Length of project Synergies with ongoing projects or other project proposals Project time estimation Thamhain (2005)

Development time Development cost Cash flow, revenue, and profit Cost-benefit Return on investment Risk EIRMA (2002)

NPV (Net Present Value) or Risk Adjusted NPV Payback Period IRR (internal rate of return) Competitive advantage Growth opportunity Knowledge accumulation