Mastering Product Development Portfolios

For any tech company whose business is based on the ability to innovate in products, managing the development portfolio is key to the business's health.

There are a few foundational realities to contend with:

• The return on investment in product development must exceed the firm's cost of capital
• The development pipeline of projects is a portfolio of investments to be managed. Every project has a risk/reward profile that needs to be understood
• The company's business model must necessarily be reflected in the choices in the portfolio. A large mature company would be expected to be more stable in their returns than an early-stage tech start-up. This is reflected in a lower cost of capital for the mature firm and a higher one for the early-stage tech start-up. In other words, investors in early-stage start-ups are buying into the risk, expecting more in return. In a mature firm, investors expect more predictability and, hence, will live with lower potential returns
• Like any investment portfolio, it is dynamic; as knowledge improves or assumptions change, it should be updated

Managing Development Portfolio

Given this reality, how should a firm manage its development portfolio? Firstly, they need to understand what sort of return they…