Frustrations of Product Portfolio Planning
Continuing with the series on product portfolio planning, earlier I enumerated the purpose and objectives of the product portfolio planning process, but in this article I wanted to discuss the common complaints from executives and product leadership alike about the typical product portfolio planning process used at most companies beyond the startup stage.
I should start by saying that I know of very few companies that are actually happy with how they decide which projects to pursue, and how they should allocate their organization’s resources. But they plow along with largely the same techniques they’ve used for years because there haven’t been many realistic alternatives.
My intention is to change that, and in the coming weeks I’ll share what I argue are some new best practices around product portfolio planning, but first I need to get out on the table the specific problems with the current approaches:
- Probably the most serious fundamental issue is that the senior management is forced to make critical decisions with very little information, and the information they do have often ranges from hopelessly inaccurate to intentionally misleading. The typical approach is to try to quantify the benefits and the costs, either quantitatively with ROI/ECV/NPV type analysis, or a little more qualitatively with a matrix of factors such as strategic fit, complexity, risk, costs, etc. Unfortunately, we all know the output of these models is only as good as the inputs (i.e. garbage in, garbage out). And realistically this decision comes too early in the process to have any sort of accurate estimate of either costs or benefits. I would like to think that most leaders today understand this, but I know that many do not, and I’ve got an article coming soon that speaks to this point specifically.
- The second fundamental issue is that these are usually all or nothing decisions. If you decide to fund a project, you are committing generally to define, design, build, test, launch, market and support. This of course is a very expensive decision, especially when you factor in the opportunity costs.
- The portfolio planning process itself is typically a big time-consuming fire drill for much of the product leadership and general management of the company, usually either quarterly or annually. Because management is forced to make these big decisions, and because so much rides on these decisions, it generates a great deal of angst and work, creating PowerPoint presentations, working with finance to try to craft a business case, and lobbying various stakeholders throughout the company to try to shore up support.
- Partly as a result of the limited real information, there is typically not enough executive discussion and debate of the various investment options. But also we should admit that corporate politics usually plays a big role here.
- Finally, given the realities of corporate life, we know that especially in large companies, a project without a strong executive sponsor has very little chance of weathering the inevitable storms. But this process and the typical organizational structure doesn’t generally force a sponsor.
But nevertheless most companies have some form of quarterly or annual session where the various projects are considered and management must decide which to fund and to what degree. And the rest of the organization – product, design, engineering, QA, marketing and sales – all are dependent on and directly impacted by these decisions.
If, like me, you believe that this is no way to run a railroad, then stay tuned for some very different approaches to this very real problem in our industry.