Co-written with George Young
This December 2010 Food Manufacturing column explores six practical tips for how food and beverage companies can simplify the implementation of an effective pipeline and portfolio management process.
The days of wild expansion are over, and many Food & Beverage (F&B) companies are re-evaluating their portfolios to determine which products are driving market growth and profitability—and which ones aren’t. Sara Lee Corp. is a great example. The company recently decided to sell its large but low-margin North American bread unit to Grupo Bimbo for almost $1 billion. Those funds will be reinvested in better-performing product lines, such as Sara Lee frozen desserts, and Hillshire Farms and Jimmy Dean brand meats.
Major moves on the scale of Sara Lee’s are relatively few and far between. However, on a weekly or monthly basis F&B companies face decisions about tens to hundreds of individual food products. It’s these latter decisions where product pipeline and portfolio management can play a strategic role in identifying the winners and eliminating lackluster initiatives early in the development process.
Despite the obvious benefits, too few F&B companies are taking advantage of product pipeline and portfolio management today because of the perceived complexity, cost, and effort. That’s why I’ve asked Bill Poston, who co-founded Kalypso with me, to join this month’s column. Bill leads our Portfolio and Pipeline Management practice and has first-hand insights into how companies can simplify the implementation of an effective pipeline and portfolio management process. Here are our combined observations.
Portfolio Management Theory Vs. Practice
Successfully implementing portfolio and pipeline management disciplines is a challenging task. However, there is a big difference between portfolio management theory and how it is typically practiced in leading corporations.
Effectively managing the pipeline does not have to be complex, difficult, time consuming, or data intensive, particularly if F&B managers do four things:
- Adopt a “get started and get better” approach.
- Learn the mantra, “complexity is the enemy.”
- Realize that this is a management discipline, not just a tool.
- Understand that this is a journey; it takes several quarters, if not years, to get really good at it.
With that in mind, let’s look at six specific recommendations for getting started and keeping it simple.
1. The Proper Role of Scoring Systems
Portfolio management uses strategic criteria and analysis to set project priorities. Scoring systems are an important part of project evaluation criteria that organizations look at when trying to make relative tradeoff decisions around priorities in their innovation process. Companies frequently make the mistake of trying to develop a scoring system that does it all—one that accounts for all of the possible evaluation criteria in the process to provide a perfectly weighted algorithm, which, in turn, determines the right answer for what their priorities should be. That’s not realistic.
Portfolio management is a discipline that is intended to provide executives with information to which they can apply their own experience and judgment to make better decisions. Scoring systems are simply an input into that process, and they shouldn’t be viewed as a panacea to defining portfolio priorities. Instead, F&B companies should use scoring models to quantify subjective data and understand the assumptions behind the measures. Prioritization requires the application of judgment. The value is in the conversation, not the numbers.
2. Priority Buckets Vs. Force Ranking Projects
Projects do not have to be force-ranked in order to effectively communicate all of the priorities to the organization. With several dozen or several hundreds of projects in the portfolio, arguing over the relative merits of two extremely important projects or two not-so-important projects is usually a waste of time and energy. Instead, F&B managers should look at the portfolio and break it into quartiles or quintiles—essentially priority “buckets”—that help communicate to the organization what the most important work is. This in turn provides the information that teams need to effectively allocate resources to those priorities.
3. Rough-Cut Resource Capacity Planning
F&B managers facing an overloaded pipeline often look to resource management for the solution. Unfortunately, this can drive a lot of work and activity that is not going to help improve throughput in the innovation pipeline. Too often, efforts are wasted on granular capacity planning exercises for unconstrained resource pools. Managing this much detail too early in the portfolio management adoption cycle can overwhelm the organization.
A far more effective approach is to view resource capacity planning at a rough-cut level. By forecasting capacity and demand at the functional or skill-set level, managers can clearly identify where the biggest challenges and bottlenecks will occur in the process. This makes it possible to focus attention and analysis on those bottleneck resource pools to improve throughput with a lot less effort.
4. Project Task Management vs. Phase-Gate Automation
The phase-gate process should serve as a decision-making framework to help evaluate individual projects critically as they approach gates. Project task management tools have a role and a place in this process. However, they aren’t important when trying to make decisions at the portfolio level about which projects to invest in, which ones should receive priority for resources and funding, and how decisions are being made as those projects move through a gated development process.
F&B companies should leave the task-level detail out of their portfolio management and pipeline management solutions when getting started. Instead, executives should make sure that the task-level plans being developed and managed by project managers map back to the higher-level phase-gate process.
As F&B companies approach more advanced stages of portfolio management maturity, it will be important to invest in advanced capabilities for managing task-level detail, but doing so at the beginning can really get in the way of improving throughput.
5. The Limited Value of Time Tracking in Product Development
Time tracking can help organizations understand how time is being spent and identify opportunities for improvement, but it is a capability better left for the later stages of adoption and product maturity. Trying to implement a time tracking system too early can derail an implementation, particularly if this is a new requirement in the organization that is inconsistent with the company culture. It also can cause F&B managers to lose focus on what matters most—forecasting resource challenges—because they’re worrying about where everyone spent their time last week.
Time tracking at the project level, rather than by individual team member, can be a valuable tool for creating a closed-loop learning system, but it is dangerous in the beginning. The reality is the best decisions usually don’t come from looking in the rearview mirror.
6. Effective Evaluation Criteria: More is Not Necessarily Better
Projects can be evaluated countless ways, but F&B companies experience diminishing returns when evaluation criteria are redundant and overly complex. The more criteria on the list, the bigger challenge it is to collect information, and ensure that it’s valuable and is actually being evaluated as portfolio decisions are being made.
F&B companies should stick to the basics and start with as few as four or five evaluation criteria that allow executives to make good decisions, such as technical probability of success, strategic fit, net present value, expected commercial value, or three-year revenue—whatever is most appropriate for the organization. Complexity can always be added and layered in over time and in response to requests from portfolio decision makers.
Realize that in the beginning, the data is not going to be perfect, and the focus should be on consistency of measurement and definition. Accuracy and sophistication will improve over time. Until then, consistency enables relative priority decisions even if there’s an accuracy problem or bias in the portfolio.
Get Started and Get Better
It is better to get started right away and improve processes later than to wait until the company has a flawless system designed. The most important step in portfolio management is starting the conversation around priorities. Prioritization does not require the management of resources or mountains of data, and F&B executives can layer in advanced capabilities, techniques, and measures over time. Remember that complexity is the enemy, and developing a world-class portfolio pipeline and portfolio management discipline is a journey.
George Young and Bill Poston are founding partners of management consulting firm Kalypso (kalypso.com), which specializes in innovation. George leads Kalypso’s Consumer Packaged Goods practice and has more than 20 years of industry experience in executive management consulting roles. Bill leads Kalypso’s Portfolio and Pipeline Management practice and brings more than 22 years of professional and management consulting experience.