by Roger Warburton and Stephen Kay

(C) 2018.
First Edition.
Published by:
RW Press, LLC, Newport, Ri. USA.

Printed Book Available at:  Lulu.com – Dynamic Portfolio Management

eBook (Case only):   Lulu – The Bargery Fabrics Case

 

Introduction

Which new products should a company invest in?

New products often account for over 50% of a company’s growth and 40% of their profits. Therefore, it is not much of an exaggeration to say that a company’s future depends on the success rate of its new products. Selecting the products to invest in requires predicting which of them will be successful.

Therefore, while difficult, businesses are obliged to attempt to predict the future.

That is, which of their new products will return the best investment?

Many companies struggle with this question and, if the research is to be believed, most are not very good at answering it. In fact, only one out of four product development projects succeeds commercially, one-third of all new product launches flop, and over 45% of development resources are wasted on ventures that fail.

If it is so important, why are companies so bad at it?

Many companies have a mix of products under development, including innovative developments, modest extensions of successful lines, technology investments, legally mandated compliance projects, and strategic corporate initiatives. In such a complex, dynamic environment, how does a company prioritize and pursue an appropriate mix of projects?

Symptoms of Poor Portfolio Management

One of the most common symptoms of weak portfolio management is a reluctance to kill off poorly performing products, which results in too many projects competing for too few resources. Once approved, projects acquire a life of their own and often continue without critical technical reviews, without project management assessment of progress, without customer feedback, and without market feasibility assessments.

The lack of a formal process for evaluating products results in companies missing positive opportunities for significant product improvements. They fail to take advantage of evolving marketing information and evaluations of early test versions by customers. Poor portfolio management can also result in investment in products that don’t support the corporate strategy.

The overall result is that companies tend to release too many mediocre products and too few genuinely successful winners.

Product Portfolio Management

On the other hand, a few companies do actually excel at introducing new products and Fortune’s list of the most admired companies contains some of the most innovative firms: 3M, Intel, Guinness, General Electric, Johnson & Johnson, Procter & Gamble, and others.

What can be learned from these successful companies? One of the most important observations is that successful products provide customers with unique and valuable benefits and the success rate for such products can exceed 80%. If greater success in new product development can, in fact, be achieved, it should be possible to educate companies in the successful methods that lead to improvements.

And, indeed, the current research proposes methods and techniques that are validated, successful, and surprisingly straightforward. Once the critical success factors are understood, business processes can be implemented that are both easy-to-understand and effective.

The process of selecting the right portfolio of products is called Product Portfolio Management (PPM). This book presents a modern, state-of-the-art approach to PPM.

Dynamic Portfolio Management

Recent research has shown that company portfolios are dynamic and that the traditional, static methods of PPM need to be upgraded to accommodate evolution and change in the portfolio from both internal and external factors. Internally, the portfolio must react to evolving customer demands, differing rates of project progress, and revised marketing priorities. The external business environment is
also dynamic and the portfolio must react to strategic company initiatives, market changes, and technological and social forces.

Projects are often started with a universal expectation of success, even for risky, high technology ventures. As development proceeds, a prototype is delivered, marketing data becomes available, and an evolved picture of the product emerges: maybe the product performs differently from what was envisioned, the market might be different than anticipated, and unforeseen risks may have occurred. This
dynamism in content operates in addition to the classic project management issues of changing costs and schedules.

This new information requires a re-assessments of the technical and marketing position of the product as well as its strategic contribution to the portfolio. Therefore, dynamic processes are required to support changes in technical content, to adapt to evolving markets, and generally to evolve the portfolio consistent with corporate strategy.

The central topic of the book is the Bargery Fabrics Case, which fills the need for a case that teaches students in classes and learners in companies the modern techniques of Dynamic Portfolio Management. By working through the Bargery Fabrics Case students learn how to evaluate a portfolio, how to select which products the company should invest in, and how to ensure that their selected portfolio
matches the strategic goals of their company. The students work through exercises in stages, with each stage consisting of a mini-lecture, a case exercise, questions, and discussion materials.

The Bargery Fabrics Case first walks students through a fairly traditional approach to Product Portfolio Management (PPM), which is founded on Cooper’s extensive research that has established a successful track record. The case then takes the students through Dynamic PortfolioManagement, which adds the latest techniques in the dynamic aspects of portfolio management to the Bargery Fabrics

Learn DPM

Learn to develop the roadmap for a dynamic portfolio. See the example from the book — below.

Contents

Chapter 1 presents the Bargery Fabrics company. The company is in transition and requires help in Dynamic PortfolioManagement.
Bargery Fabrics specializes in the manufacture of innovative fabrics in the medical and health care markets. While the company is successful, many of their products are maturing. The new CEO has proposed that the company develop a new product portfolio.

Chapter 2 presents the products under development at Bargery Fabrics.

Chapter 3 presents a market study, which estimates the future potential of the various market sectors in which Bargery Fabrics competes. The chapter also describes the development status of each of the products, along with the estimated funds required to complete each project.

Chapter 4 presents a list of assignments to be worked through. There are five sequential assignments that allow the reader to develop their own solution gradually in understandable stages. The assignments guide the reader through the steps necessary to create, analyze, and defend a portfolio.

Chapter 5 presents detailed, worked solutions for the assignments. Since there is no single, one-size-fits-all solution, we provide alternative answers and suggestions. Each solution is followed by guidance for conducting the case as well as discussion questions along with suggested approaches. The chapter concludes with a discussion about the general issues that often arise when running the case.

Chapter 6 presents the results of running of the case in real-world companies. The highlight is the description of the implementation of Dynamic Portfolio Management at Panaz.

Chapter 7 presents a Teaching Note, which includes sample learning outcomes and explains why the case’s goals for students and company learners are realistic. The Teaching Note also discusses the issues, misunderstandings, and mistakes that often arise. The Teaching Note presents teaching strategies for the two proposed audiences: graduate students in classes and learners in companies. While the audiences are
different, the Bargery Fabrics Case is used unchanged. Teaching plans are provided, along with a discussion of the relatively minor differences in approach necessitated by the different audiences. A sample exam question, and notional solution, is provided for classroom usage.

Chapter 8 discusses the Research that forms the foundation for the book. We summarize the essential topics, provide an annotated guide to the relevant literature, and list suggested topics for instructors to include in a presentation of the materials before tackling the case.

A student and learners’ version of the Bargery Fabrics Case is also available as an eBook. It contains the chapters that cover the Bargery Fabrics case, the description of the products, the marketing and financial status, and the assignments, i.e., Chapters 1 through 4. These materials can be provided to students and company learners to prepare for running the case.

Cases

Cases develop student skills in problem solving, the use of analysis tools, quantitative reasoning, and decision making in complex situations. One of the more valuable features of cases is that they teach students to deal with the types of ambiguities they face in their careers and to develop solutions to open-ended problems with multiple potential solutions.

This case includes a teaching note, which identifies the important learning objectives, explains its usefulness and relevance, defines audience expectations, and outlines a teaching plan. For the instructor, the teaching note includes advice on how to manage discussion sessions, gives feedback about previous iterations of the case, and provides guidance on typical misunderstandings and mistakes made by the students.

Unlike lectures, cases do not follow a script and instructors must learn to guide students toward their own solutions. In that context, instructors face a number of challenges, including learning what information in the case is relevant to which theoretical concepts. Here, we provide side notes to guide the instructor through these issues.

Why Dynamic Portfolio Management?

Effective portfolio management is a competitive weapon.

And yet, a decade after we first developed the Bargery Fabrics Case, there is still a dearth of cases available for teaching this essential skill. This deficit appears in companies, where potential learners need practical guidance in the implementation and management of a portfolio, and in traditional academic courses, where faculty require cases that teach these valuable skills to students.

We attribute the lack of cases to the understandable reluctance of companies to discuss publicly their successes and, especially, their failures. While many books explain what makes a portfolio successful, there are few practical exercises for either company learners or students to develop their skills by working through a realistic scenario.

Historically, Product PortfolioManagement (PPM) focused on selecting new products based on their projected financial rewards. The situation changed dramatically during the 1990s, when PPM research identified the factors critical to the success of new products. The research, which was validated in companies in many business sectors and all over the world, laid the foundation for techniques that are both easy-to-understand and effective.

More recently, there is a growing acceptance that portfolios are dynamic and that processes are required to adapt the portfolio continuously to product evolution and external business uncertainties. Dynamic Portfolio Management (DPM) enhances PPM by adding techniques that focus product selection towards achieving a company’s strategic goals and objectives.

In companies, the development of portfolio management processes requires a realistic assessment of the company’s historical products, both successes and failures. However, employees are often reluctant to speak honestly about their company’s previous failures, especially if they were involved in the product’s development. Therefore, we have found that in order to teach portfolio management effectively,
one must first establish a safe environment for the discussion of a company’s product history.

The Bargery Fabrics Case

In 2008 the authors developed a training course in New Product Development (NPD) that was delivered to companies throughout the North West of England, U.K. The course was born out of an interesting and valuable piece of research conducted by the U.K. consultancy, David Rigby Associates, which found that many companies could improve their performance by getting a better return on their investment in new product development.

The NPD training module was based on Robert Cooper’s foundational research in Product Portfolio Management. It was innovative in that it consisted of two days of in-company training by a team consisting of an experienced trainer and a subject matter expert. The training was followed by several days of coaching by the subject matter experts and spreading the coaching over time enhanced the embedding of the newly learned techniques into the company’s management processes.

The work was funded by the NorthWest Development Agency (NWDA) who set the goal that the training should improve the Gross Value Added (GVA) of our clients by £5 for every £1 spent on the program. In fact, even after removing a couple of extraordinarily successful outliers, the average GVA of our clients improved by over £20 for every £1 spent.

As part of the NPD module, a teaching case in Product Portfolio Management (PPM) was developed. During the very first running of the case in a commercial company, after the selection matrix was developed and displayed, there followed a minute of silence before theMarketing Director spoke up:

“If we’d done this last year, we would not have lost our shirt on that dog at the bottom of the list.”

At that point, we knew that PPM worked. We also confirmed that what would become the Bargery Fabrics Case was a valuable and essential component of the training. Since then, we have taught portfolio management, based on the Bargery Fabrics Case, to more than 200 learners in 30 companies.

Comments from our learners

“The number of products that exceed sales and profit targets has risen.”

“We have improved success rates and time to product launch is down.”

“We have better coordination between marketing and manufacturing.”

“Customer acceptance levels are higher at launch.”

“We have fewer design changes late in the product cycle.”

“Checkpoint gates are the key to spotting failures early.”

The Classroom Version

The success of the Bargery Fabrics Case in commercial companies motivated us to explore the possibility of using it in the classroom in a project management curriculum where portfolio management is an important component. Adaptation to the classroom required the simplification of the portfolio’s products so that no previous technical experience or knowledge was required by the students.

For the past seven years, the case has been taught several times each year during graduate courses in ProjectManagement at Boston University’s Metropolitan College (MET). We include the Bargery Fabrics Case in graduate courses in Project Management (PM) and successfully present it in a single 3-hour class.

The simplification of the portfolio had immediate benefits. The case is now completely general and, since the case no longer requires up-front knowledge about advanced materials, it can be run in any company in any business sector. As a result, we now use the identical Bargery Fabrics Case in companies and in the classroom.

While the case was successful, both in companies and in the classroom, we often felt that it seemed somewhat unfinished. This was particularly true about the final exercise—the strategic assessment of the portfolio. There was no formally validated method for determining if the selected products met the strategic goals of the company, which made the final assignment somewhat ad hoc.

The solution to this problem appeared in 2012 when Petit and Hobbs published their research monograph, Project Portfolios in Dynamic Environments. This research formalized the idea that portfolios are dynamic and that they must adapt to changes and uncertainties. Petit and Hobbs defined a nomenclature that describes the evolution and transformation of a portfolio and proposed tools for evaluating its dynamic nature. They also defined the roadmap, which describes the evolution of the new products over time. From our perspective, Petit and
Hobbs provided the critical missing piece for the Bargery Fabrics Case: a research validated, formal method for the strategic assessment of a portfolio.

Therefore, we added the dynamic capabilities of Petit and Hobbs to the Bargery Fabrics Case and, as a result, it faithfully represents the characteristics of Dynamic Portfolio Management (DPM) found in real companies. Once a company’s staff has completed the Bargery Fabrics Case, they can move on to developing their own genuinely dynamic portfolio of new products.