plm webcast 072409
DESCRIPTION
Portfolio Value Optimization A Winning Approach in Uncertain TimesTRANSCRIPT
Portfolio Value Optimization
A Winning Approach in Uncertain Times
June 3, 2009
Jim Brown, President - Tech-Clarity
Don Creswell, Co-founder - SmartOrg
Tony DeRosa, President - Platinum DB
Peter Bussey, Director PLM Value Network – SAP America
1© SAP 2009
Discussion Topics
Introduction
- Pete Bussey, SAP America
Realizing Product Development Value
- Jim Brown, Tech-Clarity
Portfolio Optimization: Creating the Greatest Value for Your Company
- Don Creswell, SmartOrg
- Tony DeRosa, Platinum DB
Wrap-up / Q&A
2© SAP 2009
How can I increase the speed of
innovation?
How can we improve responsiveness to
consumers‘ needs and market
opportunities?
How to save costs while continuously
developing and delivering new and
innovative products?
How to enable flawless development
collaboration to avoid wasted time?
How to integrate the disconnected design,
procurement, and manufacturing silos to
reduce time to profit?
How to overcome last-minute changes
which result in lost time to profit?
Manufacturers’ Challenges
PB
3© SAP 2009
Business Strategies
Relentless Focus on Costs, Long-term Growth, Customers
Efficiency
to increase
Profitability and
reduce
Time to Profit
Focus on
Customer
Satisfaction and
Perception
Innovate
with Product
Service and
Process to
Differentiate
PB
4© SAP 2009
Product and Service Leadership
Managing All Product-related Processes End-To-End
DESIGN SOURCE MAKE SELL MOVE SERVICEINNOVATE
Continuous product and service innovation
Embedded product compliance
Product delivered as a service
Integrated product development
Product and Service Leadership ... can be achieved by combining all product and
service-related processes and representations to establish a flexible, dynamic, and effective global
network, which breaks down the walls between marketing, research and development, procurement,
manufacturing, logistics, sales, and service in striving for profitable, market leading products.
Product and Service Leadership
PB
5© SAP 2009
Enabling Product and Service Leadership
SAP PLM is a key contributor to make PSL happen
DESIGN SOURCE MAKE SELL MOVE SERVICEINNOVATE
Product and Service Leadership
Continuous Product Innovation
Integrated Product Development
Product Delivered as a Service
Embedded Product Compliance
Business
Processes
End to End
Scenarios
SAP Business Suite
SAP NetWeaverIntegration
SAP NetWeaverComposition
SRM SCM ERPPLMCRMEhP EhP
Enterprise
ApplicationsIntegrated
Services
SAP PLM
enabling
Product
and
Service
Leadership
SAP PLM 7.0
Innovation
without
Disruption
PB
6© SAP 2009
PLM Customer Value Network –
A Vibrant, Value-focused Community
© SAP 2007 / Page 6
Community of PLM Participants
SAP PLM CVN
Product lifecycle focus areas
Product & Service Innovation
Idea and Concept Management
Portfolio and Project Management
Integrated Product Development
Embedded Product Compliance
250+ Active Participants
VP of Product Development, R&D, Eng.
CIOs
Directors, Managers
Business Analysts, IT Liaisons
Upcoming PLM CVN Event:
SAP PLM Customer Network Forum
Best practices and customer case studies
June 10-11, 2009
Newtown Square, PA
Contact: [email protected]
PB
7© SAP 2009
Discussion Topics
Introduction
- Pete Bussey, SAP America
Realizing Product Development Value
- Jim Brown, Tech-Clarity
Portfolio Optimization: Creating the Greatest Value for
Your Company
- Don Creswell, SmartOrg
- Tony DeRosa, Platinum DB
Wrap-up / Q&A
PB JB
8© SAP 2009
Goals
Discuss Relevant Product and Portfolio Management (PPM) Research
Review Manufacturing Viewpoints
Propose Framework for Realizing Portfolio Value
Key Takeaways
© Tech-Clarity, Inc. 2009
JB
9© SAP 2009
Introduction - Jim Brown
Hall of Fame football player
All-American lacrosse player
Godfather of Soul
Cultural Icon
Jim Carrey
© Tech-Clarity, Inc. 2009JB
10© SAP 2009
Introduction - Jim Brown
Hall of Fame football player
All-American lacrosse player
Godfather of Soul
Cultural Icon
Jim Carrey
© Tech-Clarity, Inc. 2009JB
11© SAP 2009
Introduction - Jim Brown
Industry – General Electric Major Appliances
Manufacturing engineering, systems consulting
Management Consultant – Andersen (Accenture)
Enterprise applications for manufacturers
Software Industry – SCT (Infor) & Sequencia (OSI)
Product strategy, product management, marketing executive
PLM Industry Analyst
Technology Evaluation Centers / PLM Evaluation Center
VP & Group Director, Aberdeen Group
Founder and president, Tech-Clarity, Inc.
© Tech-Clarity, Inc. 2009JB
12© SAP 2009
Portfolio Shift 2009+
© Tech-Clarity, Inc. 2009JB
13© SAP 2009
Key Question
Has your company experienced:
―Successful‖ launch of product only to find market scenario has
fundamentally changed since project was funded?
© Tech-Clarity, Inc. 2009 JB
14© SAP 2009
Key Question
Has your company experienced:
Late technical surprises that reduce a high impact product to a mediocre one?
© Tech-Clarity, Inc. 2009JB
15© SAP 2009
Key Question
Has your company experienced:
Overly optimistic market data paints a picture that fails to materialize when product hits
the market?
© Tech-Clarity, Inc. 2009 JB
16© SAP 2009
Key Question
Has your company experienced:
Continuing to develop a product even though the team knows it won’t be successful?
© Tech-Clarity, Inc. 2009JB
17© SAP 2009
Scoring
If you said yes to:
None – congratulations, take the rest of the day off because things are
going just fine
More than one – thanks for being honest, let‘s discuss how focusing
on recognizing portfolio and new product development value can help
© Tech-Clarity, Inc. 2009JB
18© SAP 2009
Unpredictable Return on Innovation
Increased executive frustration with ―black box‖ of R&D budget
―I understand the investment, but what sort of return can I expect from our innovation?‖
© Tech-Clarity, Inc. 2009JB
19© SAP 2009
Relevant Research
© Tech-Clarity, Inc. 2009
20© SAP 2009
Core Issue – Understanding Value
Product Portfolio Management Software is very good at:
Assessing alignment of portfolio with strategy
Analyzing balance and mix of product portfolio
Balancing product development efforts with available resources
Enabling new product development project execution
© Tech-Clarity, Inc. 2009JB
21© SAP 2009
Core Issue – Understanding Value
Product Portfolio Management Software is very good at:
Assessing alignment of portfolio with strategy
Analyzing balance and mix of product portfolio
Balancing product development efforts with available resources
Enabling new product development project execution
… but how do we determine financial value?
© Tech-Clarity, Inc. 2009JB
22© SAP 2009
My Disappointment in PPM Solutions
Top 5 answers to a simple question:
“Where do you get the NPV?”
– ―It is user defined‖
– ―You can just enter it‖
– ―Most people get it from a spreadsheet‖
– ―You can put in anything you want‖
– ―That is the ‗net present value‘ for the project‖
© Tech-Clarity, Inc. 2009JB
23© SAP 2009
Three Keys to Managing for Value
Understand where value is created and destroyed
Actively attack uncertainty and risk in order to narrow in on
financial value
Manage for value across the entire product development
lifecycle
© Tech-Clarity, Inc. 2009JB
24© SAP 2009
What Factors Drive Value?
―We create a value map to identify where the value comes
from, by asking what creates value and what destroys value.
We get a lot of new and innovative ideas from understanding
where the value lies, and never quite end up with the project
ideas that we started with.‖
© Tech-Clarity, Inc. 2009
Executive Consultant — Strategy
Commercial Aircraft Manufacturer
JB
25© SAP 2009
Attacking Uncertainty and Risk
―Sensitivity diagrams, or tornado diagrams, show where the
value of the project can swing very significantly–indicating
where the project resources and time should be spent.‖
© Tech-Clarity, Inc. 2009
Technology Implementation Manager
Forest Products Company
JB
26© SAP 2009
Manage for Value
――We use 90-100 day milestones and set our next step as
learning about the biggest risk. With this approach, we are not
just plowing money into R&D—we are spending the money on
understanding and overcoming the biggest risks to achieving
project value.‖
© Tech-Clarity, Inc. 2009
Financial Analyst
High Tech Manufacturer
JB
27© SAP 2009
Proposed Framework
© Tech-Clarity, Inc. 2009
Source: Aberdeen Group, August 2006
JB
28© SAP 2009
Key Takeaways
Understand where value is created (and destroyed) in your
portfolio
Attack uncertainty and risk in order to narrow in on financial value
Manage for value across the entire product development lifecycle
Focus PPM on realizing financial value from new products
© Tech-Clarity, Inc. 2009JB
29© SAP 2009
Discussion Topics
Introduction
- Pete Bussey, SAP America
Realizing Product Development Value
- Jim Brown, Tech-Clarity
Portfolio Optimization: Creating the Greatest Value for Your Company
- Don Creswell, SmartOrg
- Tony DeRosa, Platinum DB
Wrap-up / Q&A
30© SAP 2009
Why do we need to concentrate on value?
SmartOrg/Stanford survey*: 65% of project/portfolio execs are frustrated over
— No consistent and transparent way to measure value of R&D projects
— Inability to address risk and uncertainty in a disciplined manner
* Executives participating in “Better, Cheaper, Faster: How Value-Based Management Delivers Vastly Improved Portfolio Results,” a Stanford University/SDG webinar. Survey conducted by David Matheson, SmartOrg.
31© SAP 2009
Economic Portfolio (strategic)
• Selecting valuable projects• Feeding winners and killing
losers• Optimizing economic value
Resource Portfolio (tactical)
• Allocating resources• Meeting budget goals• Meeting time to market
requirements
Portfolio Navigator™ RPM
Two types of portfolios — you need to
manage both.
32© SAP 2009
Assessing the value of a new product: Solar
Teapot
A brilliant new innovation!
• Boils in seconds• Uses no electric power• Strong appeal to Green Movement
33© SAP 2009
The Innovation Team is excited!
But is this a good business deal?
34© SAP 2009
The Drama Begins: acknowledging uncertainty
TECHNICAL
Can we do it? What are the
chances we can successfully develop, produce and market the product?
FINANCIAL
Should we do it? Is this a profitable deal for us?
Marketing: “Yes” — CFO: “No”
Conflict over market size, share, price, margins, ramp-up time, profitability.
This is normal, given the uncertainty around each of these factors.
35© SAP 2009
The Drama Unfolds: dealing with uncertainty
Team develops Low, Median and High estimates of market factors, launch cost, growth rate, etc.
36© SAP 2009
Portfolio Navigator™ calculates value.
Technical Issues
Commercial Issues
Cost Issues
Calculations
37© SAP 2009
How valuable is Teapot relative to other products
in the portfolio?
Teapot
38© SAP 2009
How does Teapot risk/reward compare?
Teapot
39© SAP 2009
Sensitivity analysis reveals impact of
uncertainty (―Tornado Chart‖)
Lots of uncertaintyaround:
• Peak market share
• Margin
• Market size
40© SAP 2009
The tornado identifies the three most
important factors that drive value.
Challenge: mitigate downside — apply resources to drive to the upside.
Expected Net Present Value
Downside Risk
Upside Potential
41© SAP 2009
Do we have the resources to address the three
critical factors?
Value Optimization Resource Optimization
Portfolio Navigator™ RPM
42© SAP 2009
Who is available to work on Teapot Project?
43© SAP 2009
Value Optimization Results Can be Used to Allocate
Resources to the Most Important Projects
Optimized
Scenario # 1
Optimized
Scenario # 2
Value analysis results returned to SAP RPM
Optimized
Scenario # 3
44© SAP 2009
Value Optimization Results Can be Used to Allocate
Resources to the Most Important Projects
45© SAP 2009
Resources allocated: review results one quarter
later.
Portfolio Navigator™ RPM
Value Optimization Resource Optimization
46© SAP 2009
Uncertainty narrowed and NPV increased.
After: ranges of uncertainty have narrowed — value has increased
Before: wide range of uncertainty around key variables
47© SAP 2009
Value relative to other products significantly
increased
48© SAP 2009
Less risk — higher expected value.
Teapot
49© SAP 2009
Management agrees to continue
development
“We have made great progress in addressing the critical uncertainties. Let’s move ahead. But keep your eyes on the value meter!”
50© SAP 2009
Best Practices
• A portfolio is a collection of projects that enables comparison on a level playing field
• Two kinds of portfolios: strategic and tactical. Track each at gate reviews
• Develop ranges of uncertainty around each variable in collaboration with stakeholders
• Do sensitivity analysis to identify opportunities for creating value
• Charts, numbers and analyses are not ends in themselves; they provide insights and support meaningful discussion
51© SAP 2009
Discussion Topics
Introduction
- Pete Bussey, SAP America
Realizing Product Development Value
- Jim Brown, Tech-Clarity
Portfolio Optimization: Creating the Greatest Value for Your Company
- Don Creswell, SmartOrg
- Tony DeRosa, Platinum DB
Wrap-up / Q&A
PB
52© SAP 2009
Summary
Resources are available to help SAP customers readily
extend their enterprise business platform to enable portfolio
management and optimization, including cost-effective
packaged solutions with fast ROI.
Portfolio management and optimization enable cost
reduction today, and profitable growth in the future
Identifying and monitoring the value of projects is a major
challenge, and key to success
53© SAP 2009
Next Steps
Learn more – request a free copy of the whitepaper ―The ROI of Product Portfolio
Management: a How to Guide‖ by Jim Brown, Tech-Clarity, Inc.
Assess - arrange a one-hour free private review of your portfolio optimization
situation and options with Platinum DB and SmartOrg experts
>> To request the whitepaper or the free consultation, contact:
Kate Solis - [email protected]
Engage- attend the SAP PLM Customer Network Forum June 10-11 at SAP
Americas Headquarters in Newtown Square, PA. Meet SAP customer peers and
SAP experts to learn best practices in leveraging SAP solutions for PPM and product
development results. Hear customer case study presentations.
>> For more information on the SAP customer event, contact:
Pete Bussey - [email protected]
54© SAP 2009
Questions?
55© SAP 2009
Contacts
Jim Brown, Tech-Clarity: [email protected]
www.tech-clarity.com
Don Creswell, SmartOrg: [email protected]
www.smartorg.com
Tony DeRosa, Platinum DB Consulting: [email protected]
www.platinum-db.com
Pete Bussey, SAP PLM Customer Value Network: [email protected]
www.sap.com/plm