I’ve never met a homebuilder who wants to build a roof before pouring a foundation. Yet when I talk with executives about optimizing product development portfolios for customer appeal, competitive impact, and resource allocation, they sometimes ask this question first: how can we do a better job of optimizing development investments across our major lines of business? That’s essentially the roof of the portfolio.
This recently came up in a conversation with an iconic financial services company that wanted to improve how development resources are allocated across its retail banking, commercial banking, retirement, and insurance businesses. Of course, the C-suite of every diversified enterprise in any industry must concern itself with such issues. But sequence is critical. And in this case, the sobering reality was that there was more work to do to optimize new product development resources within each business unit before they could possibly optimize across units.
It’s a paradox that this is obvious and yet so often ignored: the only way to optimize a company’s product development spend is to first optimize it at every intersection of a product line and a target market segment. At each of those intersections is a set of needs and attributes that drives whether a customer chooses Product X vs. Y. When the development pipeline is optimized at each intersection, only then is the company able to optimize across multiple portfolios and business units by working with building blocks that are already optimized.
Like building a house, portfolio optimization is necessarily a bottoms-up discipline. Where there is excellence in product development prioritization and resource allocation at each segment-product intersection, senior management can be much more confident in optimizing across all product lines, customer groups and, ultimately, across business units — knowing that each brick in the corporate product development house is, on an ongoing basis, an optimized brick.
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