# Product Portfolio Management: An Analysis of a Large Medical Device Company

Aidan O'connor, Kathryn Cormican

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Aidan O'connor, Kathryn Cormican. Product Portfolio Management: An Analysis of a Large Medical Device Company. 10th Product Lifecycle Management for Society (PLM), Jul 2013, Nantes, France. pp.20-28, 10.1007/978-3-642-41501-2_3 . hal-01461872

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# Product portfolio management: An analysis of a large medical device company

Aidan O'Connor¹, Kathryn Cormican²

¹ NDEC, Dublin City University, Dublin, Ireland

² College of Engineering & Informatics, National University of Ireland, Galway, Ireland

Kathryn.Cormican@nuigalway.ie

**Abstract.** This paper focuses on product portfolio management in a large multinational medical device organization. The contribution of this research is to provide insights into the nature, composition and decision making processes of product portfolios in a real world setting. The research is important because portfolio management decisions have a significant impact and influence the performance at each stage in the product life cycle. Results of the study indicate that portfolio management is a complex process in general but particularly challenging when dealing with technology development projects or innovative new products as unchartered waters are difficult to assess. We found that there are challenges with transparency and that stakeholders need fact based and information driven decisions. There is a need for better up front planning and systems to guide the process. Consistent criteria should be used to select and prioritize projects to facilitate better comparative ranking and allow for balanced portfolios, as well better resource distribution. However we also found that these criteria may change depending on the stage in the lifecycle.

**Keywords:** Product Portfolio Management; New Product Development; Medical Device Industry; Best Practice

## 1 Introduction

The mechanisms for introducing new medical device products are now more complex than ever due to long development cycles, expensive technology development, and lengthy regulatory pathways. Systematic structures and processes are required to select, prioritize and manage new projects in order to ensure that the right projects are chosen and that scarce resources are effectively distributed throughout the development lifecycle [1]. Portfolio management can be defined as a formalized method to select, support and manage a collection of projects that share and compete for the same resources and are carried out under the sponsorship or management of an organization [2], [3]. Product portfolio management is complex and fraught with challenges in practice. For example, research suggests that formalized systems are often not in place [4]. Indeed where systems are in place they often lack rigor and in many cases the system does not clearly align with the
organization's strategy; the criteria for assessment are poorly defined and decision
making is sporadic and inconsistent [5], [6].

The goal of this study is to analyze product portfolio management in a large
medical device company. A detailed case study was undertaken in order to understand
the nature and composition of new technology and new product portfolios. To do this
we analyzed the type of projects; the value of projects and the amount of minor
projects in the portfolio. We also wanted to better understand the decision making
processes. Therefore we investigated whether structured processes are in place; how
they have evolved in recent years; the nature of the gating system (i.e. the number of
gates and scoring criteria throughout the lifecycle (start, middle and end); when and
why projects are terminated and how resources are allocated.

## 2 Product Portfolio Management

According to Cooper et al [7] portfolio management “is a dynamic decision making process”, where an organizations’ list of technology development and new product development projects is continuously reviewed, revised and renewed. In this process, new projects are “evaluated, selected, and prioritized; existing projects may be accelerated, killed, or de-prioritized; and resources are allocated and reallocated to the active projects” [8]. The portfolio decision making process is characterized by uncertain and changing information, dynamic opportunities, multiple goals and strategic considerations, interdependence among projects, and multiple decision-makers and locations. According to Martinsuo and Lehtonen [3] “The objective of project portfolio management [is] to maximize the value of the portfolio in terms of company objectives, to achieve a balance of projects in terms of strategically important parameters, or to ensure strategic direction of projects”. Portfolio management also allows for an effective allocation of resources among on-going projects and helps to minimize competing for a small pool of resources [1]. A synthesis of the literature in the area reveals that effective portfolio management should include the following performance goals [1], [5], [6], [8], [9], [10], [11], [12].

* To have the right number of projects in the portfolio for the resources available.

* To avoid pipeline gridlock in the portfolio undertaking projects on time and in a time-efficient manner.

* To have a portfolio of profitable, high return projects with solid commercial prospects.

* To have a balanced portfolio i.e. long term versus short term, high risk versus low risk, and across markets and technologies.

* To have a portfolio of projects that is aligned with the business's strategy.

* To have a portfolio where spending breakdown mirrors the business's strategy and strategic priorities.
# 3 Research Methodology

A detailed case study was employed in a leading medical device manufacturer in Ireland utilizing a mixed method research approach. In keeping with the organization's requests for anonymity, the identity of the organization and the participants is not disclosed. All participants were directly involved in the new product or new technology development process which feeds the project portfolio and are directly involved in the process for accepting or rejecting projects. Informants included project managers; program managers; senior researchers; managers and directors or senior leaders. The subjects selected were proportional and representative of their sub-population. The research comprised of initial open-ended interviews to identify key themes from the outset. This was followed by a detailed structured survey. Validation interviews then took place to verify initial findings and provide more in-depth analysis. Quantitative data was analyzed using excel, SPSS, and Minitab software. The output was presented as frequency analysis, histograms plots, boxplots, ANOVA, and ANOM plots. The qualitative analysis was broken down in two stages. First, the initial coding broke up the data into components relating to actions and meanings. The data was analyzed using three methods: open coding, axial coding, and selective coding. Open coding is the process by which data is broken down analytically [13]. The common attributes were linked together to form categories. In axial coding, categories were related to their subcategories through conditions, strategy, context, and consequence. Selective coding unifies all categories around a core category.

# 4 Findings

## 4.1 Project Portfolio Structure

Findings from our analysis reveal that product portfolios are well balanced as they contain a mix of small, medium, and large projects at the time of capture and the median lies between seven and nine projects. Data was collected about the value of the products in the portfolio. We found that a good mix of both high and low value projects existed in the portfolios. Interestingly, the majority of the portfolios contained at least one high value "blockbuster" or "superstar" project. The number of minor projects (i.e. limited scope, capital, and financial return) within the portfolio is an important metric. We found that the median percentage of minor projects lies somewhere between 20% and 40%.

## 4.2 Level of Innovation in the Portfolio

We attempted to establish the type and level of innovation with the portfolios. The lowest occurrence project type (13%) was "*Revolutionary or Breakthrough*". The next
was “Evolutionary or Derivative” (40%). The remaining 47% was “Platform-Next Generation” projects. In order to better understand the link between technology development projects and new product development projects and the impact of this in the portfolio, we probed whether there was a specific technology which had led to new product development within the portfolio. The vast majority of participants agreed that technology development leads to new product development in the project portfolio. One informant noted that “the company runs a formal technology development program in order to develop novel technology platforms that can be commercialized across a broad range of products through the formal new product development process” while another stated that “technology was developed at an academic level for 5 years; pilot plant established internally and then finally migrated to production system”.

## 4.3 Portfolio Management Process

The results reveal that the majority of product portfolios had a structured management process in place. However, our study found that a notable change occurred in the decision-making processes within the last five years. Processes were changed in order to ensure better consistency and to avoid conflicting messages and prioritization of projects across divisions and business units: “Project ratings and justifications were not consistent among business units or project leaders making it hard to compare projects.” Better streamlining and strategic alignment was also a motivating factor to alter the decision-making processes. The overall aim was to limit the number of projects and prioritize high value ones for the project portfolio: “There has been a reduction in the number of projects to allow more focus on the high priority ones. Streamlining of project/investment selection based on company strategy and alignment with current economic climate and future state factors.” Many project managers felt the need for more defined structures for both technology development and product development projects that has formulized gating systems to facilitate better control on the projects: “A fully procedural system for new development projects was rolled out and gating items identified and formalized for acceptance/rejection within/into the portfolio.”

## 4.4 Gating Process

There are a high number of gates active in the new product development process. These projects had about 11 gates but a standard deviation of 3.5, which may highlight some inconsistency in the response. There are, on average, 10 gates for new technology development projects, but the standard deviation is 8.0. These results are significant, showing a wide distribution of gate numbers within the technology development process.
## 4.5 Scoring Criteria

In order to evaluate the best criteria that can be used to evaluate a projects successful inclusion in the portfolio we asked participants to rank a series of criterion chosen from the literature. These include: development timeline; strategic market penetration; cost of goods sold (COG); product complexity; next generation platform; adequate resources available; blockbuster product; return on investment; capital costs and level of project risk. Each criterion was ranked in order of perceived importance from 1-10, where 1 represents the highest priority and 10 the lowest (see Figure 1). The results show a spread of data within each criterion. However market penetration was deemed the most important factor. The other criterion show varying rank levels, which makes determination of the next level of priority difficult to assess.

In order to assess the next priority level, mean variation and ranks are analyzed relative to each other. The P-values for both Bartlett's and Levene's (F-Test) in the test for equal variance on all the factors shows P-values in excess of 0.05 (0.730 and 0.454 respectively) which supports the hypothesis that there is no statistical difference in variation across all factors. An analysis of means (ANOM) highlights a shift between differing factors. This suggests that "market penetration" was the highest priority. The median level of priorities were "blockbuster product", "cost of goods (COG's)", "development time", "next generation platform", "project risk", and "short return on investment (ROI)". The lowest priority criterions were "capital costs", "product complexity" and "resource availability".

We then attempted to identify the best criteria to measure the health of the project within the formal review process over the project lifecycle i.e. once approval was granted to initiate the project and officially make it part of the portfolio. We found that "alignment to the portfolio strategy", "return on investment", and the "technical feasibility or challenge" were important criteria. Other key criteria that were identified include: alignment with the business strategy; product advantage; technical feasibility; target market penetration; likelihood of success and risk versus return.

<figure><img src="image_2.png" /><figcaption>Fig. 1. Project Selection Criteria</figcaption></figure>
In order to ascertain what criteria should be used to evaluate the successful launch of any new product participants were asked to rank a series of criterion chosen from the literature. These include: on time launch; market demand; requirements met for cost of goods sold (COG); return on investment (ROI) achieved; project resourced adequately; project managed well (from plan to assess phases) and blockbuster product. The ranking ranged from 1–10. The results showed a spread of data within each of the criterions. Based on visual factors, it can be deduced that achieving ROI is the most significant factor for product launch (see Figure 2). The other criteria showed varying rank levels, and so further analysis was required.

An analysis of the means variation and means rank relative to each other were conducted. A test for equal variance on all the factors was calculated. The P-values for both Bartlett's and Levene's (F-Test) shows P-values in excess of 0.05 (0.247 and 0.402 respectively). This supports the hypothesis that there is no statistical difference in variation across all factors. An analysis of means found that "achieved ROI" is the highest priority. The next level of priorities are identified as "blockbuster product", "market demand", "product met COG's", "on time launch" and "project managed effectively" as occupying the median of the ranking. The lowest priority criterion was "resourced adequately".

<figure><img src="image_3.png" /><figcaption>**Fig. 2.** Successful Product Launch Criteria</figcaption></figure>

## 4.6 Project Termination

We tried to uncover what the main reasons were for terminating a project in the portfolio prior to final development or market launch. Changing business priorities was cited as a significant reason for projects stopping within the portfolio. One
respondent notes that "*the main reason projects are stopped is because of shifting business trends....*" Often other projects took priority and resources were reallocated. According to one informant, "*resources in either product development or operations [were] transferred to other projects.*" Other contributory factors for terminating projects include the inability to realize key technology potential and a poor understanding of market requirements. High costs are cited as a reoccurring problem throughout the analysis. The cost to develop new technologies increase or unforeseen costs arise. Sometimes the product cannot compete with a product currently on the market. Also, the marketing of a new technology may take too long to recoup the costs incurred. Markets also erode which has an impact on recouping costs.

The development of new technologies and innovative products is a risky endeavor and the level of risk has a major impact on decisions to terminate a product in the portfolio. For example, a more complicated regulatory path or other notified body requests may add significant project risk, resulting in a No Go decision. The changing market environment is having a significant impact on how business strategy is developed. The economic downturn affects growth, making it difficult to launch new products, especially ones with higher premiums: "*External environment changes and projections for growth alter accordingly; new or niche products are more likely taken up during booming economic conditions.*"

The main reasons for projects stopping late in the development process is a result of (a) a lack of systems and tools to help make these difficult decisions, (b) strong team ownership, loyalty and connectivity to the project, and (c) change in expectation: "*You usually get a sense that programs are off track but lack the formal decision making tool to guide the teams.*" Also, "*teams feel they can overcome many obstacles so they won't back down from challenges even if they present with risks.*" Other reasons, such as poor up front expectations, are blamed for late decision-making: "*Expectations upfront set the scene which adjust during development and can have a significant impact on the benefits of the project thus leading to rejection at the portfolio level.*"

## 4.7 Resources in the Portfolio

Most of the respondents stated that a central process for the management of resources was in place. The resource element is critical to the execution of projects and an important factor when determining balance within the portfolio. Therefore participants were asked if projects in a portfolio pipeline had resources. A majority concluded there was an imbalance regarding resources within the portfolio. We explored this further and some key categories emerged. These included the conflict between functional priorities and project priorities: "*It is always hard to get a perfect balance due to so many departments working on a project. Sometimes priority of project for the company makes the managers prioritize the project for the team members.*" The projects may start with fewer resources than required until a defined execution plan with a resource map is in place: "*Early research project resources tend to be limited, until potential for ROI is identified; it takes careful management of what is available ... Projects are predominantly started with inadequate resources.*"
While insufficient resources were found to impact on the success of projects so too did inappropriate appropriate resources. We found that poor skills and limited capability often result in the poor execution of projects: "It's not an issue on the headcount number but in the capability or competency of those resources. A new team with little experience will take longer to do tasks therefore may feel under resourced." We also found that high-value projects have a very high probability of being resourced, although careful allocation of seasoned staff is required to ensure adequate capability and competency within the team structure: "If the business case is strong enough the resources will be found."

## 4.8 Potential Improvements

Participants identified some challenges with transparency towards stakeholders. The use of facts and data to drive decisions is logical and transparent: "It is not quantified and hence not highlighted if a department is falling behind in their tasks..." Additionally, the use of the global resource network could eliminate the impact of imbalanced portfolios in particular divisions. This network could remove the low-value elements existing in each division's portfolio. One participant proposed having "divisions compete for resources so that the top return is picked not just the top for that division." Another emphasized the need for "agreement to have a globally funded product development team that only spends money where there is the most Return on Investment".

Greater up-front planning is always desired but not always achieved. Change in the market environment can have a significant impact on the success of new product launch: "It is critical to ensure that the project portfolio aligns with the business strategy and is constantly monitored in the context of the ever-changing business environment in order to ensure that appropriate projects are supported and projects that are no longer relevant are stopped." The final improvement category is Increase Formal Reviews. The responses considered greater project health checks as a pruning operation to encourage better and timelier decision-making: "More regular checks on the health of the overall portfolio and if we're on track to meet strategic objectives."

## 5 Conclusion

Portfolio management is an effective method for organizations to manage their projects through their development lifecycles, provided ranking, priority, gating, and consistent approaches are taken into consideration. However, there are some challenges which can be overcome by implementation of new processes and a shift in culture. Our study found that a balanced portfolio is integral to resource availability and risk management. However to achieve this, greater uniformity in the system of scoring and ranking of projects is needed. In other words a robust review gating system is required throughout the development lifecycle. Without a unilateral process, differences of approach can occur within the organizations sub-structures.
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