Find the right mix


William Kelley, Vice Chairman, Jelly Belly Candy Co., North Chicago, Ill., USA


by Peter Fretty * photos by Chip Williams


your candy dish holds an example of successful portfolio management. Ninety-nine percent of all households indulge in some form of sweet treat, according to the National Confectioners Association. Each year roughly 1,000 new confections hit the market, but the global candy industry has a historically high project kill rate ranging from 60 to 90 percent. Most confections never make it to the sweets aisle of your local supermarket.

In choosing the projects that will advance a firm's profitability, executives must accurately predict what the market demands—and what their firms are best suited to deliver. Just because a project sounds good, doesn't mean it makes sense in terms or strategy or timing. “Regardless of how you are considering changing your product line you need to have a solid understanding of what the customer wants—and when it is appropriate to make an exit,” says William Kelley, vice chairman of Fairfield, Calif., USA-based Jelly Belly Candy Co. “Obviously, we get suggestions from everywhere you can imagine, both internally and externally.”

An ideal project portfolio is dynamic, and executives can proactively change the project mix as markets shift.

Successful portfolio management goes far beyond the traditional financial component of kill or fund.

A variety of external factors means agility must be embraced by a portfolio management team.

Top-down portfolio management tactics are bound to fail unless they account for information coming from the various organizational levels.

Once Jelly Belly narrows its potential projects based on instinct, the company goes through a research and experimentation process before it proceeds. “Fortunately our people understand that you can only take so many shots at the target, and you need to get pretty close pretty quickly or it gets ridiculously expensive, especially as your company continues to grow,” Mr. Kelley says.

The Right Mix

Whether consumers’ fixation on carbohydrates or the desire for the latest multifunctional gadget drives demand, executives must become adept at anticipating consumer trends. “You need to be on the leading edge of all the trends or you are not going to see the results you desire,” Mr. Kelley says. “If you do things right, consumers will identify with your name and along with that comes a certain level of expectation.”

According to Mr. Kelley, Jelly Belly's best strategy for agile portfolio management is combining projects from both the manufacturing and the executive levels. “We understand that the more people we include in the selection process, the more likely we are to see the big picture.”

In fact, one of Jelly Belly's most recent projects-turned-product started at the executive level. Known as Sport Beans™ and designed to replace electrolytes lost while exercising, the initial concept came from the firm's chair, Herman Rowland, and made quite a splash at this year's All Candy Expo in Chicago, Ill., USA. “We worked on taking this from concept to internal development project for approximately four years before we developed a product that we thought would meet the desires of an ever-changing marketplace while staying within our own standards,” Mr. Kelley says.

The right project mix means different things to different companies. Defining a best-fit portfolio starts with a structured approach that considers four main aspects, according to Leyla Seka, director of Product Management at Bala Cynwyd, Pa., USA-based Primavera Systems Inc.

1. Work must be evaluated consistently across the customer base, whether internal or external.

2. Businesses must develop the ability to look at what they currently are delivering in comparison to what customers want.

3. The governance team must understand business modeling. “This is really where you can use the what-if aspect, water-lining [or benchmarking] and other management tools to see what options exist before ever making commitments,” Ms. Seka says.

4. Communication must play a key role. “Whether you are using a dashboard view model, have a comprehensive e-mail update system in place or any one of the other tools available today, frequent exchanges must exist at every level,” Ms. Seka says.

J. LeRoy Ward, executive vice president of Arlington, Va., USA-based ESI International, adds that executives also require a clear strategic vision. “While the strategy is the overall plan, the projects are the individual pieces implemented to achieve that plan,” he says.

In addition, business processes must designate who will have the ultimate authority for decision-making over which project are included or excluded from a portfolio. “In most instances, one team rather than a series of teams should direct these choices, especially since this team also will decide when it is appropriate to kill a project,” Mr. Ward says. “This team also must know the criteria when selecting individual projects, which is why portfolio management historically has been an executive practice.”




Fumiko Kondo,
Managing Director, Intellilink Solutions Inc.,
New York, N.Y., USA

Take Action

Once a firm finds the right portfolio mix—one that maximizes value, optimizes resources to eliminate idle time or justifies risk—it must act upon its decisions in a timely manner. “Once you have a grasp on the benefits, you can determine the business impact and how a specific project will change your people and your organizational structure,” says Christopher Worsley, Ph.D., CEO of Newport Pagnell, Buckinghamshire, U.K.-based CITI Ltd.

For instance, global spirits manufacturer Diageo, London, U.K., wanted to change internal resource allocation as it acquired new brands. Diageo management realized that it needed to understand differences between common processes and global processes across manufacturers. “Clearly, shared services would be much more successful and cheaper than implementing local services. However, there was a lot of tension in the various markets as to what [Diageo] did and did not own,” Dr. Worsley says. “Using the portfolio management process rather than having individual projects compete with one another diffused the debate because it eased the firm's ability to revert to its values rather than individual pet solutions.”


the marketplace

Continual market research is integral to portfolio management. “It gives an organization a solid feel for the gaps that exist within a marketplace,” says J. LeRoy Ward of ESI International. “While a firm is reviewing its portfolio, it may see whether or not it is wise to continue with a particular project.”

The health maintenance organization Kaiser Permanente, for instance, spent roughly $1 billion to develop a custom application to manage its system. “Kaiser discovered that there was an off-the-shelf software product that did a vast majority of what the company was hoping to accomplish,” Mr. Ward says. “As a result, it killed the project in order to initiate a $1.5 billion project in its place. They found that through life-cycle cost analysis it was actually lower overall for the firm to abandon its custom-build system in favor of the commercial off-the-shelf solution. Had management not been looking out into the industry over the long-term, the company would have spent substantially more money to accomplish the same goal.”

The idea is to create a sustainable link between deliverables and benefits. “To do this effectively you need to look closely at what customers actually want and have the ability to track backwards and forwards to see how performing in this fashion impacts all of the other projects within the portfolio, as well as how it affects the specific product or deliverable under consideration,” Dr. Worsley says. “This means not only looking at the benefits, but the potential side effects to the operating arm, which must be successful regardless.”


IBM, for instance, developed a portfolio management process using a framework that considers internal capabilities and consumer market information in decision-making. The company spent approximately a year looking at where best portfolio practices existed, hired external consultants and conducted market research and competitive analyses. “While management needs to make the ultimate decisions, we determined very quickly that you need to have input from every piece of your business prior to making any formal decisions,” says Jim Dickerson, IBM director of Integrated Product Development.

PMI portfolio standard update img

PMI plans to launch the Portfolio Management Standard and the Program Management Standard mid-year 2006, according to PMI Standards Manager Dottie Nichols. “We really want to focus on the significance of a portfolio of projects for a CEO and an overall organization as it ties to strategy,” she says. “As a standard, the PMBOK® Guide made a major difference in improving the execution of single projects. We also want to raise the level of execution of programs and portfolios in a similar way.”

It should become clear in the marketplace that project management is much broader than just the management of single projects. “Project management also encompasses the management of programs—groups of related projects and associated operations—and the management of portfolios, which deals with all of an organization's projects and/or programs,” Ms. Nichols says.

There also are very positive career path implications for project managers who aspire to manage programs or portfolios. “Portfolio managers have not always been project managers because portfolios tie directly to an organization's strategy and associated financials. As a result, they have oftentimes historically been the CFOs or individuals within the CFO or COO staffs,” Ms. Nichols says. “In order to grow from project manager to program manager or portfolio manager, project managers should recognize the need to understand the business, its strategy and financials as they relate to the overall concept of project management within an organization. It is important to recognize that the concept of portfolio management of projects, because it has much broader impact on an organization, is bigger than what you do to manage individual projects.”

IBM has empowered a cross-functional portfolio management team within each company group. “As they manage the portfolio, they obtain all the input and effectively go through a series of steps to determine strengths and weaknesses both internally externally,” Mr. Dickerson says.

Every portfolio team will differ slightly depending upon an organization's corporate structure. However in most situations, the ideal a team should include an executive-level member (CEO, COO, chair), the product, brand or line manager, a finance representative as well as at least two project managers who have differing backgrounds or specialties. The key in developing a team is to put together a group of empowered people who can see the big picture and make timely decisions so that an organization does not miss out on appropriate opportunities.

The team reviews feasibility, impact on existing and upcoming projects and whether the specific project is congruent with the organization's strategic plan. Frequency should depend slightly on the volatility of an organization's specific marketplace but should occur no less than monthly. The portfolio team sets the tone and direction of an organization, so the more often it meets, the easier it is to maintain direction and avoid continuing on with projects that no longer make sense.

Embracing Agility

Regardless of intent, no amount of planning can account for external factors—any-thing from shifting market demands to natural disasters—which directly affect projects and ultimately hamper the overall direction of even the best-designed portfolios. As a result, a successful portfolio management team must embrace the concept of agility.

A portfolio map provides a comprehensive view of a company's assets. While maintaining a portfolio map is relatively easy, creating it can be time-consuming because it requires a fair amount of detail for long-term accuracy. Ideally, portfolio maps should give the team a quick view of every project, its status, how it has drawn upon company resources and how it has benefited the organization. The best maps blend information from the executive level with detailed information rolling up from the project level to blend strategy with true activity. The goal is to put together a living document that continues changing as projects unfold. That allows for the project team to remain agile while executives change direction, make kill decisions and reallocate resources. (For a view of CITI Ltd.’s approach, see “Portfolio Mapping.”)




Christopher Worsley, Ph.D.,
Newport Pagnell, Buckinghamshire, U.K.

img portfolio mapping

When creating a portfolio map, Christopher Worsley, CITI Ltd., advises that executives use “do-ability’” and “desirability” criteria as the X and Y axes, respectively. “You establish the degree of cost-risk associated with a project expenditure, not simply the magnitude of the cost, and the benefit-risk associated with the benefits or value of the investment,” he says. “This means in practice you should specify first a benefit case (value, benefits and benefits risk) then specify three solutions giving cost and cost-risk for each. Use a hierarchical series of strategies:

Maximize Value (Risk Adjusted)

Optimize Resources (Least Idle Time for Strategic or Scarce Resources)

Diversify Risk (Cost-Risk).

Dr. Worsley added that it is good practice to indicate degree of cost-risk (horizontal bar) and benefit-risk (vertical bar) against each investment made.


“It does not matter if you get the portfolio right today, what matters is months down the line,” Dr. Worsley says. “The map needs to be living so that you can incorporate the next project or opportunity. This means being able to make the judgments that really make sense, being able to fit projects into an already functioning model. With an understandable need to balance desirability with durability, governance groups need to maximize value and optimize resources at the same time.”

No one person should have the ultimate authority on making portfolio decisions—meaning that the team should always have an odd number of people involved. Obviously the CEO or chair can pull rank, however this would essentially wipe out the true purpose of having a portfolio team. While “pet projects” may be not harm an organization, they rarely contribute to its long-term health or its attempts to accomplish its strategic mission.

However, this approach does make accountability more difficult. Team members must be equals with clear roles and responsibilities typically accompanied by the authority to make decisions. The goal is to set a clear contract of expectations for each person and develop accountability trails. According to Dr. Worsley, a special expenditure committee could establish the desirability of an investment and attempt to prioritize business and benefits cases coexisting with an operating committee that establishes the do-ability in terms of headcount, other resources, impact on infrastructure, and on business and technical architectures. “Combined, the portfolio committee that reports to the executive board then has the accountability for all choices,” he says.

Cross-functional governance also is a key component in embracing agility, according to Fumiko Kondo, managing director of New York, N.Y., USA-based Intellilink Solutions Inc. “Companies cannot singularly place the decision on the financial, marketing or executive legs of an organization,” she says. “If you do, the result will be a one-sided portfolio that does not provide an agile mix that makes sense with your organization's expertise, talent levels or strategic direction.” PM

Peter Fretty, a Whitehall, Mich., USA-based freelancer, has appeared in more than 40 trade and consumer magazines including Advanced Manufacturing, Continental In-Flight, Food Engineering and Industrial Engineer.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.




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