Portfolio management for new product development: results of an industry practices study

TLDR

Portfolio management for product innovation—selecting the right set of development projects—is critical to new product success. The article reports on new product portfolio practices and performance of a large North American firm sample, probing how portfolio methods fare across six performance metrics. The study identifies reasons for portfolio management importance, ranks the popularity of techniques (financial, business strategy, bubble diagrams, scoring models), and details how firms employ these methods to rate and rank projects. Financial methods, despite being most popular, produce the worst overall results, whereas top firms use non‑financial approaches such as strategic and scoring methods, and the study outlines managerial implications for improving portfolio management.

Abstract

Portfolio management for product innovation – picking the right set of development projects – is critical to new product success. This article reports on the new product portfolio practices and performance of a large sample of firms in North America. Reasons why portfolio management is important are identified, followed by the relative popularity of the different portfolio techniques: financial methods are first, followed by business strategy methods, bubble diagrams and scoring models. Next, how the various portfolio methods fare in terms of six performance metrics is probed. Financial methods, although the most popular and rigorous, yield the worst results overall, while top performing firms rely more on non‐financial approaches – strategic and scoring methods. The details of how some of these more popular methods are employed by firms to rate and rank development projects are also provided. Finally, managerial implications, including suggestions for making portfolio management more effective in industry, are outlined.