Strategic Buckets

A second strategic resource allocation approach is strategic buckets, which can be used alongside or instead of the product road map. When translating the business's strategy into strategic portfolio decisions (the middle left part of Figure 7.2-1), a major challenge is spending breakdown or deployment. Where does senior management wish to spend its resources when it comes to product innovation: on what types of projects and in what product, market, or technology areas? And how much do they wish to spend in each area?

The strategic buckets model operates from the simple principle that implementing strategy equates to spending money on specific projects. (Note that "resources" includes dollars as well as people time; hence, resource or money allocation is for both fiscal expenditures and person-months allocation.) Thus, operationalizing strategy really means setting spending targets.

The method begins with the business's strategy and requires senior management to make forced choices along each of several dimensions—choices about how they wish to allocate their scarce resources. This enables the creation of "envelopes of resources" or "buckets." Existing projects are categorized into buckets; then senior management determines whether actual spending is consistent with desired spending for each bucket. Finally, projects are prioritized within buckets to arrive at the ultimate portfolio of projects— one that mirrors management's strategy for the business.

A rather simple breakdown is used at Honeywell: the Mercedes Benz star method of allocating resources (Figure 7.2-3). The leadership team of the business begins with the business's strategy and uses the Mercedes emblem (the three-point star) to help divide up the resources. There are three buckets:

• Platform development projects, which promise to yield major breakthroughs and new technology platforms

• New product developments

• Others, which include extensions, modifications, product improvements, and cost reductions

Management divides the R&D funds into these three buckets. Next, the projects are sorted into each of the three buckets; management then ranks projects against each other within each bucket. In effect, three separate portfolios of projects are created and managed, and the spending breakdown across buckets and project types mirrors strategic priorities.

What dimensions should be used in the strategic buckets splits? One leading R&D planning executive identified them as "whatever dimensions the leadership team of the business find most relevant

Figure 7.2-3 Strategic Buckets: The Mercedes Benz Star Method of Portfolio Management

New Product Projects

Figure 7.2-3 Strategic Buckets: The Mercedes Benz Star Method of Portfolio Management

New Product Projects

(change the basis of competition)

Platform Projects

Other:

Extensions, Modifications, Improvements, Fixes, Cost Reductions

(change the basis of competition)

Platform Projects

Other:

Extensions, Modifications, Improvements, Fixes, Cost Reductions

The business's strategy dictates the split of resources into buckets; projects are rank ordered within buckets, but using different criteria within each bucket.

Source: R. G. Cooper, S. J. Edgett, and E. J. Kleinschmidt, Portfolio Management for New Products, 2nd ed. (Reading, Mass.: Perseus Book, 2002).

to describe their own strategy." In other businesses, such as ITT Industries, the dimensions used in each business unit are prescribed. ITT uses two dimensions: project types and business areas. And Honeywell uses only the single-dimension project types as in Figure 7.2-3. Some common dimensions to consider are:

• Strategic goals: Management splits resources across the specified strategic goals. For example, what percentage will be spent on defending the base? On diversifying? On extending the base?

• Across arenas: The most obvious spending split is across the strategic arenas defined in the business strategy (arenas are generally product, market, or technology areas where the business wishes to focus its new product efforts). That is, once management has defined the arenas of strategic focus and the priorities of each, they then move to deployment and decide how many resources each arena or battlefield should receive (see Figure 7.2-4, left).

• Product lines: Resources are split across product lines: For example, how much to spend on product line A? On product line B?

On C? A plot of product line locations on the product life cycle curve is used to help determine this split.

• Types of projects: Decisions or splits can be made in terms of the types of projects (as in Figures 7.2-3 or 7.2-4, right).

As an example, given its aggressive product innovation strategic stance, EXFO Engineering (a manufacturer of fiber-optic test equipment) targets 65 percent of R&D spending to genuine new products, another 10 percent to platform developments and research (technology development for the future), and the final 25 percent to incrementals (the "supportfolio," that is, product modifications, fixes, and improvements).10

• Technologies or technology platforms: Spending splits can be made across technology types (for example, base, key, pacing, and embryonic technologies) or across specific technology platforms.

• Familiarity matrix: What should be the split of resources to different types of markets and different technology types in terms of their familiarity to the business? Some companies use the popular familiarity matrix (technology newness versus market newness) to help split resources (see Figure 7.2-5).11

• Geography: What proportion of resources should be spent on projects aimed largely at North America? At Latin America? At Europe? At Asia-Pacific? Or globally?

Figure 7.2-4 Deciding the Spending Splits: Strategic Buckets by Strategic Arena and Product Type

Target Resource Split by Strategic Arena

Target Resource Split by Project Type

Aerator;

Figure 7.2-4 Deciding the Spending Splits: Strategic Buckets by Strategic Arena and Product Type

Target Resource Split by Strategic Arena

Target Resource Split by Project Type

Improvements and Cost Reductions -

Aerator;

Aerators for P&P 20.0%

Platforms

New Products

Improvements and Cost Reductions -

Platforms

Aerators for P&P 20.0%

Petroleum Blenders 23.0%

New Products

Figure 7.2-5 Familiarity Matrix Bubble Diagram: Resources Split Across Market and Technology Newness Categories

New But Unfamiliar n wn

Ne New But t Familiar e

Base Markets

Note: Projects are shown as bubbles, with bubble size denoting the resources being spent on each project.

Source: Reported for Bayer in Cooper, Edgett, and Kleinschmidt, Portfolio Management for New Products.

• By stage or phase of development: Some businesses distinguish between early-stage projects and projects in development and beyond. Two buckets are created: one for development projects and the other for early-stage projects. One division at GTE allocates seed corn money to a separate bucket for early-stage projects.

Was this article helpful?

0 0
Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

Get My Free Ebook


Responses

Post a comment