Your candy dish holds an example of successful portfolio management. Ninety-nine percent of all households indulge in some form of sweet treat, according to the National Confectioners Association. Each year roughly 1000 new confections hit the market, but the global candy industry has a historically high project kill rate ranging from 60 to 90 percent. Most confections never make it to the sweets aisle at your local supermarket.

In choosing the projects that will advance a firm’s profitability, executives must accurately predict what the market demands – and what their firms are best suited to deliver. Just because a project sounds good, doesn’t mean it makes sense in terms of strategy or timing. “Regardless of how you are considering changing your product line you need to have a solid understanding of what the customer wants and when it is appropriate to make an exit,” says William Kelley, vice chairman of Fairfield, Calif., USA-based Jelly Belly Candy Co. “Obviously we get suggestions from everywhere you can imagine, both internally and externally.”

According to Mr. Kelley, once Jelly Belly instinctively narrows its potential projects down ones that make sense, the firm goes through a research and experimentation process before it proceeds any further. “Fortunately our people understand that you can only take so many shots at the target, and you need to get pretty close, pretty quickly or it gets ridiculously expensive, especially as your company continues to grow.”

Finding the Right Mix

Being in a consumer market, it is very important for to be at the forefront of market trends – whether it is the market’s fixation on carbohydrates in Jelly Belly’s case or the desire for the latest multifunctional gadget. “You need to be on the leading edge of all the trends or you are not going to see the results you desire,” said Mr. Kelley. “If you do things right, consumers will identify with your name and along with that comes a certain level of expectation.”

According to Mr. Kelley, Jelly Belly’s best portfolio mixes tend to exist when the management team decides on a combination of projects coming from outside the company, the manufacturing level and the executive level. “We understand that the more people we include in the selection process the more likely we are to see the big picture.” In fact, Jelly Belly’s one of most recent projects turn product started at the executive level. Known as the sport bean and designed to replace electrolytes lost while exercising, the initial concept came from the firm’s chair, Herman Rowland, and made quite a splash at this year’s All Candy Expo in Chicago, IL, USA. “We worked on taking this from concept to internal development project for approximately five years before we developed a deliverable product that we thought would meet the desires of an ever changing marketplace while staying within our own standards,” said Mr. Kelley.

According to Bala Cynwyd, PA, USA-based Primavera Systems Inc. Manger of Product Management Leyla Seka, a properly prepared portfolio must take into consideration four main aspects. First, work needs consistent evaluation across the customer base – whether internal or external. Secondly, businesses need to develop the ability to look at what its customers are asking for in comparison to what is doing. The third component requires the governance team to understand modeling. “This is really where you can use the what-if aspect, water-lining and other management tools to see what options exist before ever making commitments,” she said. Communication also needs to play a key role. “Whether you are using a dashboard view model, have a comprehensive email update system in place or any one of the other tools available today, frequent exchanges must exist at every level,” said Ms. Seka.

            Arlington, VA, USA-based ESI International Executive Vice President J. Leroy Ward agreed adding that companies also need to a strategic vision of where their business is going. “While the strategy is the overall plan, the projects are the individual pieces implemented to achieve that plan,” he said. Mr. Ward further recommended that businesses settle on who makes the decisions to include a project within a portfolio. “In most instances, there needs to be one team rather than a series of teams, especially since this team will also make the decision when it is appropriate to kill a project,” he said. “This team also needs to know the criteria when selecting individual projects – which is why portfolio management has historically been an executive practice.”

Mr. Ward added that since portfolio management decisions can range from financial to extending technical capability or creating a me-too product, the company clearly needs to define the process. “A perfect example of why this is important occurred when Hewlett Packard Services decided that the type of deals it wanted to go after had to be at a certain dollar level,” he said. “It is these types of decisions that essentially define an organization.”

Taking Action

According to Christopher Worsley, CEO of Newport Pagnell, Buckinghamshire, UK-based CITI Ltd., once a firm finds the right mix that maximizes the value, optimizes the resources to eliminate ideal time or justifies risk, it needs to act upon its decisions in a timely manner. “Companies need to implement a top-down strategy that translates the vision of the value proposition, and ultimately leads to benefits,” he said. “Once you have a grasp on the benefits you can determine the business impact, and how a specific project will change your people and your organizational structure.”

For instance, adult beverage manufacturer Diageo wanted to change how it utilized its internal resources as it continue to acquire new brands. In order to accomplish its goal, Diageo realized that it needed to understand the differences in common processes and global processes, explained Mr. Worsley. “Clearly shared services would be much more successful and cheaper than implementing local services; however, there was a lot of tension in the various markets as to what they did and did not own,” he said. “Using the portfolio management process rather than having individual projects compete with one another diffused the debate because it eased the firm’s ability to revert to value sets rather than individual pet solutions.”

The idea is to create a sustainable linking process between deliverables and benefits, explained Mr. Worsley. “To do this effectively you need to look closely at what customers actually want, and have the ability to track backwards and forwards to see how performing in this fashion impacts all of the other projects within the portfolio, as well as how it affects the specific product or deliverable under consideration,” he said. “This means not only looking at the benefits, but the potential side effects to the operating arm, which must be successful regardless.”

To combat a similar challenge, the Poughkeepsie, NY, USA operations of chipmaker and systems provider IBM developed a portfolio management process using a framework that takes into consideration internal capabilities as well as consumer market information in order to make effective project decisions. To develop the appropriate process, IBM spent approximately a year looking at where best practices existed, hired external consultants as well as conducted market research and competitive analysis to properly position the firm. “While management needs to make the ultimate decisions, we determined very quickly that you need to have input from every piece of your business prior to making any formal decisions,” said Director of Integrated Product Development Jim Dickerson.

To accomplish this IBM has empowered a cross-functional portfolio management team charged with managing a portfolio of projects within each company group. “As they manage the portfolio, they obtain all the input and effectively go through a series of steps to go through strengths and weaknesses both internally as well as the possible impact of outside sources,” said Mr. Dickerson.

Embracing Agility

Regardless of intent, no amount of planning can take into account external factors such as shifting market demands and natural disasters, which directly affect projects and ultimately hamper the overall direction of even the best-designed portfolio. As a result, it is crucial that a successful portfolio management team embraces the concept of agility.

According to Mr. Worsley, portfolio agility is simpler when a company constructs a portfolio map. “It does not matter if you get the portfolio right today, what matters is months down the line,” he said. “The map needs to be living so that you can incorporate the next project or opportunity. This means being able to make the judgments that really make sense. The set of factors have to be able to fit projects into a model that is already in flight. With an understandable need to balance desirability with durability, governance groups need to maximize value and optimize resources at the same time.”

Cross-functional governance is also a key component in embracing agility explained New York, NY, USA-based Intellilink Solutions Inc. Managing Director Fumiko Kondo. “Companies cannot singularly place the decision on the financial, marketing or executive legs of an organization,” she said. “If you do the result will be a one sided portfolio that does not provide an agile mix that makes sense with your organization’s expertise, talent levels or strategic direction.”

Sidebar: Modeling the Marketplace

Obviously, market research must be an integral component in portfolio management, in order to make an impact it needs to be continual in nature. “It gives an organization a solid feel for the gaps that exist within a marketplace,” said Mr. Ward. “While a firm is reviewing its portfolio, it may see whether or not it is wise to continue with a particular project.”

A prime example of this occurred with the HMO organization Kaiser Permanente, explained Mr. Ward. “After spending roughly $1 billion to develop a custom application to manage its system, Kaiser discovered that within the market there was a development firm authoring software that did a vast majority of what the company was hoping to accomplish. As a result, it killed the current project in order to initiate a 1.5 billion project in its place,” he said. “They found that through lifecycle cost analysis it was actually lower overall for the firm to abandon its custom build system in favor of the commercially off the shelf solution. Had they not been looking out into the industry over the long-term the company would have spent substantially more money to accomplish the same goal.”

Market intelligence has also been imperative to IBM’s success, said Mr. Dickerson. “There are times where you could fall into a trap where you focus on your own strengths and you do not necessarily look closely enough at what your competitors are doing,” said Mr. Dickerson. “The balance of looking at the open spaces, trends, competitive analysis and how you can apply technology in new areas is a key component to agility and knowing when it is right to keep a project within a portfolio or whether or not it is appropriate to kill the project.”

While Jelly Belly has never engaged in typical consumer-based market research, it has embarked on creative means of obtaining market opinions. “The key to date has to keep our focus more on a conceptual level rather than product based,” said Mr. Kelley. “This way we are not chasing very specific products, can focus on the initial phases of project development and can hopefully keep our to-market rate as high as possible.”

PMI Portfolio Standard Update

For the first time PMI is preparing to launch a portfolio management standard and a program management standard, explained PMI Standards Manager Dottie Nichols. “Both of these are currently out for exposure and final drafts have a scheduled delivery date of the end of the second quarter of 2006,” she said. “With our established presence in the project arena, we wanted to broaden into these growing domains.”

According to Ms. Nichols, since so many people perceive portfolio management as directly tied to financial management, the organization really wants to make people within the industry understand that the process actually much broader. “We really wanted to focus on significance of a portfolio of projects for a CEO and an organization as it ties to strategy,” she said. “Conceptualizing that and putting it down in a manner that will gain the attention of the marketplace was truly one of our biggest concerns.”

Ms. Nichols added that project managers need to realize that as portfolio management continues to come to the forefront, it broadens potential career paths. “Portfolio managers have not always been project managers – instead they have been individuals within the CFO, CIO, COO or CEO offices,” she said. “It is a matter of getting the attention that this component is bigger than what you do to manage projects.”

At this point, PMI wants people to read the standards, put their stamp on them and send in their thoughts, comments and concerns. “This has the power of broadening the prospective of the entire field as well as how a project manager’s role ties to corporate strategy,” she said. “It actually creates a three-tier triangle with project management at the bottom, program management in the middle and portfolio management at the top, which brings a new level of conceptualization to the field.”