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Improving the Design Process through Portfolio ExcellenceImproving the Design Process through Portfolio Excellence

Medical Device & Diagnostic Industry MagazineMDDI Article Index Originally Published MDDI September 2005Product Development Insight

September 1, 2005

18 Min Read
Improving the Design Process through Portfolio Excellence

Medical Device & Diagnostic Industry Magazine
MDDI Article Index

Originally Published MDDI September 2005

Product Development Insight

Good portfolio management requires good strategy development and project execution capability. All these elements together can give medical device companies a better handle on emerging technologies, future IP needs, and partner strategies.

John Lamb
PRTM Management Consultants

Portfolio excellence is all about successfully managing investment projects and programs within a business so as to optimally charter and adjust those investments. It also requires developing good strategies. Portfolio excellence essentially links a strategy to projects with a dynamic, adaptive, and integrated management process that directs, prioritizes, allocates resources, and manages across all investments (see Figure 1).

Drilling down from this broad definition, portfolio excellence depends on what a company needs to do over the coming few years to drive its strategies. It can require more focus on new technologies or more focus on new combinations of existing technologies. It can require learning to manage more-sophisticated external partnerships, or it can involve changing an internal culture to develop a strategic capability, like nurturing innovation or integrating internal capabilities that already reside in dispersed acquisitions and functions.

I will look at the strategies that are currently proving most relevant for the medical device and diagnostic industry, including the industry's best practices (what the top 20% or so of companies are achieving). I will also refer to a few breakthrough practices. These refer to the top 5% or less. Figure 2 shows the high-level results from stage-by-stage practice benchmarking. Portfolio excellence can increase revenue growth by more than 50% and drive profits up 30–40%.

Figure 1. Portfolio management links strategy development to its project execution.

Leading in Quality

Device companies continue to adopt best practices that are already well understood in other industries. The device industry has its own best-practice leadership, too, and many other business sectors, including government, are now drawing from the device industry for best practices in areas such as quality management.

Portfolio Management. So, what are the priorities for portfolio management? It depends somewhat on whether a company is a large or small organization. And for imaging equipment, implantable devices, and in vitro diagnostics, there are specific needs. Table I highlights some of the needs and opportunities that can be met specifically by portfolio management.

Figure 2. Portfolio excellence can help companies grow more than 50% faster and with 30% greater profitability than those using project excellence.

Integration and Cooperation. Healthcare providers are becoming more-sophisticated buyers of healthcare with consumer-driven, e-health, and health network initiatives. If two components are integrated in a more sophisticated system—e.g., drugs on stents—it is clear that although initial costs are higher, patients benefit and system costs are less for subsequent events.

In short, healthcare customers' challenges are often best met by more-integrated and complete solutions, and capabilities that cut across a number of businesses need to be integrated to deliver them. The biggest barrier to effective cooperation in some organizations has been that there is no link between strategies and projects. Companies see the opportunities, such as a market strategy, emerging. They know the project capabilities reside somewhere, but capabilities are often in disconnected parts of the same organization, or spread across multiple organizations, and there is no portfolio process to effectively connect them.

New Technologies. Increasingly, broad and rapid technology developments and an increased pace of competitive developments, particularly from start-ups, are also significant portfolio drivers. Investors (big corporations and independent venture capitalists) are looking more and more to medical device companies.

Many exciting solutions are coming in early-stage development. These solutions are being seen in the potential health benefits of small implantable devices, more-sensitive imaging with data power, the convergence of imaging across technologies, and of genomics and proteomics with drug therapies. The big companies have strong channel strength in distribution, sales, and support, but they only produce a small fraction of the exciting new ideas.

Technology opportunity is not just in the device industry itself, but also in related technologies like computing and wireless. Ambulatory therapies can be remotely monitored, as well as prescribed. Best practices for integration of wireless have been emerging already in other industries (e.g., automotive). Unless a project is a single-service outsourcing deal, portfolio management is the level at which more strategic partnerships need to connect.

Faster Responses. The pace of change has increased too. Medical device companies that once saw new platforms every 10–15 years are now seeing them every two or three years. The general availability of low-cost, high-bandwidth communications enables huge gains in integration across the entire product life cycle in ways never before possible. Start-up companies often already do this, but larger companies must adopt the same new business practices.

Portfolio capability, however, often develops slowly. Indeed, going back to the stent example, two companies led the way. Each had to grapple with and overcome difficult portfolio management challenges to get there. The medical device industry tends to develop the portfolio capabilities needed “just behind time” rather than “just in time.”

For the most part, the industry is still struggling to create a platform that includes global integrated development, sourcing and manufacturing transfer, simultaneous global launch, and transfer to product life cycle management of an instrument and its consumables. Device companies can pave the way to the higher growth and profitability rates shown in Figure 2. However, doing so requires building a core capability in portfolio management to drive future growth and profits, rather than cobbling a strategy together piecemeal.

Good Portfolio Management

Assuming that the strategy and project capabilities are solidly in place, good portfolio management has a number of elements that need to be carefully configured (see Figure 3).

Front-End Capabilities. Front-end capabilities are key to developing the deep understandings that come from true voice-of-the-customer methodology. That term is used a lot in the device industry, and much of the time, well-meaning people do not really know what it involves. To understand how the methodology can lead to dramatic new product concepts and major market share gain, read Voices into Choices by Burchill and Brodie.1 This methodology can be targeted at an entire market segment or at a specific line extension. It needs to be used at the appropriate level, which depends on the strategic context, including the product, platform, market, and industry maturities. The key deliverables are insights into features and benefits that surprise and delight customers, because the deliverables fit their needs so well.

Guidelines. A simple but formal set of guideline questions should be used to manage ideas: How do fresh ideas come in, what is on the first one-page review, how is it posted for input, how is it reviewed and given quick feedback (always go, stop, set aside, or redirect), and how does it get more resources to move on to the tested-ideas review. If an idea passes this stage, it usually can become a concept in the first high-level planning phase (still assumption based). This phase leads to the introductory product development pipeline review, often called the concept phase. These first two steps are focused on showing that something new seems to be a good idea in the context of the strategy and fits well with all the other projects in the pipeline.

The concept phase looks for the first time across all the aspects needed to get the product to market. This phase makes explicit assumptions to come to a broad, but not deep, analysis of how the concept might get to market and fare in the marketplace. Then, if the pipeline decision team likes those results, the concept can go on to the detailed planning and requirements phase, where all assumptions are tested to see whether the concept is fit for full cross-functional development. It is essential that this phase has the full cross-functional core team committed to creating the best plan and recommendation possible.

Table I. Portfolio excellence drives improvements in innovation and productivity.

Decision-Making Team. Assemble a small team of decision makers who meet regularly. The team must consist of representatives from all the key areas: R&D, intellectual property (IP) law, marketing, regulatory, finance, global markets, etc. These folks are responsible for approving ideas through the ideas pipeline, for the functional quality of the assessments, and for allocating the requested resources for each subsequently approved stage. They split into preplanned subgroups to review the functional content of ideas that are to be recommended (perhaps legal and R&D for an IP issue, or marketing and R&D for a technical review), supported by two other technical experts tapped for their subject matter expertise (one of these can be from outside). The most appropriate forums need to be defined.

As ideas are managed in the portfolio process, it is important to level the playing field between ideas from the inventors, from the outside IP world, from internal R&D, from marketing, from quality, from operations in other divisions, from the shop floor, from clinical thought leaders, etc. It is also important to include those who must be sought out. It is a critical part of the design to consider what all these inputs look like for the business and to structure the process to give all ideas equal consideration.

Work Teams. Business or market segment teams that manage a particular part of the business explain the ideas and recommendations for their part of the portfolio. Then a number of smaller, defined teams (e.g., an R&D champion and a marketer) are aligned with the different projects. These teams can be invoked quickly to get through each idea phase to the next review. Using teams makes it much easier to determine the appropriate resources when anything is approved to the next phase.

Data Summary Framework. A framework for data summary serves to keep this playing field level. It also provides all the right data to make the decisions as objective as possible. A framework starts by defining which inputs are relevant: life, disease, clinical and payer trends, sales distribution and competitive trends, and relevant emerging and available technology trends. The strategy will have already helped a lot with setting the framework.

The strategy determines the critical assumptions on which these decisions hinge: a change in reimbursement, a competitive direction, a clinical validation of one versus another, or a cost price point, for example. This is the starting point for the portfolio, both for the data collected and for the format in which it is aggregated. Investments must be lined up with key strategies, including which platforms when, which claims (i.e., requirements) for which platforms, and which components are needed to meet these requirements (the technology and market platform roadmaps).

Figure 3. Configuration for portfolio management.

The framework also needs to connect efficiently and at the right level with all the other inputs needed—from the ongoing projects in the pipeline and the ideas that are lining up, to the latest sales, market growth, and outside competitive data. The framework should include these elements:

• The context of the strategy and product roadmaps.
• The context of current market positions and sales.
• Recent launches and current project pipeline status.
• Overview of the latest idea pipeline.
• Characterization of existing, planned, and proposed project resources (staff, expenses, capital).
• The deployment and availability of the existing resource pool and those that need to be developed or hired.
• Risk assessment analysis.

Getting the right elements is essential. In general, they need to be durable. They need to be views that will last at least through the implementation of the current strategy and beyond, so those responsible for setting them in motion can get familiar with them.

The framework also should include a basis for assessing relative project attractiveness. It should provide a mechanism for pulling everything together in a prioritized (but not binding) list. It should include a description of the dimensions on which projects should be scored, such as strategic fit (versus priorities, competitors, core competency goals, etc.), commercial value (growth, profits, cost of doing business, other costs), and risk assessment (technical, market, IP, regulatory, and reimbursement). Then, agreed-upon weights should be applied to each criterion to allow different kinds of projects to be compared on the same matrix. The weights will change occasionally in line with the company's evolving strategy.

This approach only works well if the same team prioritizes all the projects using the same assumptions at the same time; otherwise, the calibration can be inconsistent. It is usually better to have separate lists grouped by different buckets of investment. A bucket is defined as a different business or strategic thrust, a new product, a market expansion, or a cost improvement. It is easier to get effective prioritization for one category at a time, and it serves the strategy better to first broadly allocate investment levels between the different buckets, then to look project by project within the buckets.

Common Processes. Establishing a common process means that everyone involved has a shared understanding of how it works, what things mean, and what each person is responsible for to keep the project working well. A shared understanding can be tough to get with senior management. The top team may represent nearly as many different corporate cultures as the number of managers on the team.

A common process must be carefully integrated into the corporate calendar, coordinated with incoming data on external markets and sales, and linked to internal project pipeline and strategy reviews. It also needs dedicated supporting personnel. These people work for the process champion on the senior team and ensure that the process is followed and amended when necessary, with the top team's approval, and followed through with the necessary rollout and training.


Establishing the common process is the biggest implementation challenge. Getting everyone on the same page about how to manage ideas that go into the development pipeline, for example, is difficult. Someone typically knows the IP issues, someone else knows the market and the strategies, and someone else knows the technical risks. Someone else understands the sourcing and partnership issues and a host of functional others know what would really be involved in terms of time, cost, and resources to get it to market (or to complete the project if it is not a new product launch).

The challenge is actually quite similar to that of creating effective sales and operations planning (S&OP). It involves systematically pulling together the data and the options in a routine and repeatable way. Each element is prepared in a format that enables senior management to make the best trade-offs and decisions at each portfolio meeting. The approach needs to be clearly documented, and everyone needs to be trained and coached on it. The key elements of this change are shown in Table II.

Just laying out a plan does not build the capability, however. Learning is tough because a typical strategy cycle does not repeat as often as S&OP or project review meetings, for example. Strategic planning occurs only every three, four, or six months in device companies. Some managers—frequently the champions of new strategies that are struggling for investment—adopt this approach early on. It often takes three cycles for the doubters to see its benefits. They often need to see how trends can be spotted more easily, and how resources can be redeployed.

Table II. Portfolio management differs significantly from project management.

Portfolio versus Pipeline

It is important to understand where pipeline management fits in. Portfolio management is much more about what goes into the pipeline, and pipeline management is much more about getting what goes in to come out successfully. As stated earlier, effective project management is a prerequisite, and pipeline management is one level above that—managing and balancing across projects and market strategies. These are shown in context in Figure 4.

Fine-tuning the flow of projects through the pipeline from phase to phase is critical to effectively meet the portfolio goals. Successful pipeline flow requires that a senior management cross-functional team meet regularly. They must meet more often than just to review projects that are passing phase-gates. The membership of this team will likely overlap the portfolio management team, but there will be differences. The portfolio team will likely have a few more senior and global managers, and the pipeline team will have a few more operational managers.

Breakthrough Practices. Although the best-in-class is more relevant to most device companies, it is important to look at what breakthrough companies are doing as well. Breakthrough practices involve managing all investments through a common process. Companies usually start with technologies and product development, but global marketing investments, cost improvements, and supply-chain development can be managed as well.

Other practices that can be addressed through the same portfolio process include customer-service investments, information technology, and other infrastructure investments. The number of reviews and steps may be scaled down as appropriate. Proj-ects may be combined in a program and reviewed at the program level with senior management, for example.

Another breakthrough practice is dynamic resource management. This type of resource management means knowing all the project resources and where they are working, then planning projects to get maximum value from the most capable resources. Such management provides people with what need as they go into the future. It also tracks what was taken where in the past, as well as where everyone is now. It needs sufficient detail to be a good planning guide, but must not be too cumbersome to maintain. Also, the same system should connect resource management to project resources and portfolio views of resources—past, present, and future. Although it sounds quite basic, and many have tried, most organizations still struggle with this step.

Figure 4. Portfolio and pipeline management together connect strategy to its execution.

Full Circle

Portfolio management will not work—and adds little value—without good strategy development and good project execution. When combined with those two elements, good portfolio management provides better understanding for strategy, including
feasible pathways for emerging technologies, future IP needs, and partner strategies, for example.

Good project execution within a well-supported phase-review process provides more predictability and understanding about what can and can't be done. It also identifies the current status of projects. It captures lessons learned so that they can be fed back into the system to drive both more-effective execution and better portfolio planning. Good project execution feeds real-time data through the pipeline management component of the portfolio.

This cycle explains the gains: they are mutually reinforcing. The number in Figure 2 that shows about a 50% increase in growth is the result of a company moving from some cross-functional project management to complete portfolio management. This improvement may seem high. Yet the top 20% at the portfolio level—the companies that are best-in-class at portfolio management—are actually nearly 100% better.

Connecting good project management with good strategy through good portfolio management closes the loop. It creates an adaptive process that allows each part to get better in a coordinated way. Like the transition beyond annual operating plans to monthly S&OP, portfolio management moves a company from infrequent planning (typical once-per-year strategy exercise) to adaptive strategy management. Adaptive management keeps most critical data and views current and can be invoked to make adjustments that are effective and integrated. Of course, good strategies do not need frequent adjustment, but their implementation does. And, any time of the year, when something bubbles up in that process that requires a new look at the strategy, the organization is ready and can respond within a month or two.

When this process begins to work, all the critical perspectives can be seen at the same time, in a way that is easily assimilated and up-to-date. It allows much more robust trade-offs to be made than ever before. The annual or semiannual strategic planning process then also becomes much different. It doesn't start from scratch each time, and it doesn't have everyone struggling to learn the meaning of new creative charts each time. It builds on the current strategy and the portfolio views of how it is playing out, with formats and data that are well known. The project teams have the clarity of direction to just do what needs to be done, without any unnecessary interference. Nirvana? Perhaps not. There are other challenges that medical device businesses must deal with. But the portfolio management process leads to increased motivation and effectiveness and substantially greater growth rates.

1. G Burchill and CH Brodie, Voices into Choices (Madison, WI: Oriel, 1997).

Mike Johnston is national sales and marketing manager for Dukane Corp. (St. Charles, IL).

Copyright ©2005 Medical Device & Diagnostic Industry

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