AberdeenGroup Research Brief
November 2006
Product Value Assessment and Monitoring: Delivering a Substantial Margin Advantage
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Assessing and Monitoring Product Value – throughout Product Development
What are best in class companies doing differently to ensure product value? According to Aberdeen research, one critical differentiator is that they focus on the value being generated, not only during product selection, but throughout the product development process. During this time changes in project and market dynamics – which can increase or decrease potential product value – occur. NPD projects invariably have some level of risk and uncertainty that must be accounted for when assessing the market value of the product. As NPD projects progress, risks are either realized or avoided, and uncertainty diminishes as assumptions are replaced with market research and facts. Continuing evaluation of product value helps ensure that sufficient expected product value is still available as the project progresses by enabling companies to take corrective actions if value slips or even kill a project if it won’t deliver its expected – or at least a compelling – return for the business.
However, accurately assessing and monitoring product value isn’t easy. In Aberdeen research for the Product Portfolio Management Report, respondents identified the top challenges in improving PPM to be their inability to properly value product opportunities (38%) and decision processes not based on objective information (37%) on potential value. Both of these challenges result, at least in part, from a lack of objective information. Without objective information
decisions become subjective – and inertia or politics end up determining what companies do. However, best in class overcome this problem by a combination of interrelated “best practice:” activities and solutions, including the following:
Measuring Performance More Frequently
Best in class companies are differentiated by both their choice of key performance indicators (KPIs) and the frequency with which they measure these KPIs. They most commonly used measures are net present value (NPV) and average product development lead time. These KPIs support choosing valuable products and getting them to market rapidly. In particular, top performers also are more than twice as likely as other companies to measure portfolio value – and do so at least monthly. This practice allows them to act in a timely fashion if product value is threatened and to kill failing projects.
Using More Parameters for Managing and Monitoring Product Portfolios
There are a lot of factors that influence product value. To address the challenge of measuring product value, best in class companies also consider more of these parameters in managing and monitoring their product portfolios (Table 1).
Table 1: Best in Class – Parameters Considered in Product Portfolio Management
Source: AberdeenGroup, August 2006
In fact, assessing, monitoring, and managing value throughout portfolio assessment and execution
pays off. This approach:
- “…forces us to get clear and specific about the value of each element of the portfolio, which was something we had great difficulty doing before.”
– Portfolio Manager, major oil company
- “…enables different stakeholders who speak ‘different languages’ – finance, technology, manufacturing and sales – to translate what they know into a common ‘value language’ understood by all.”
– R&D Executive, Fortune 100 paper products company
- “…accelerated major decisions from years to months and doubled the value of one project by recognizing a strategic issue ‘lurking in the project details’.”
– Vice President of Discovery, pharmaceutical company
- “…showed us what our portfolio could deliver in meaningful, bottom-line terms, giving us real insight into which projects to fund.”
– Vice President of Business Development, technology-based packaging company
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