Another article with some best practices for the weekend – this time from the Corporate Executive Board on R&D project portfolio management –Pick a Winner and Make it Pay. As the pressure on improving R&D efficiency increases, one approach organizations seem to be following is increased portfolio reviews.
However, reviews do not automatically improve portfolio quality. One of the key reasons for that is that projects need to be measured on equal terms across product lines, technologies, maturity, and divisions. This is hard to do, but essential:
We saw the best portfolio managers focus on two capabilities in particular: 1. Ensuring project valuation and selection criteria are consistent across the enterprise. 2. Identifying and managing risk from the portfolio level down, rather than from the project level up.
The other problem in reviews is lack of uniform categorization scheme (along three axes – product lines, technologies and maturities). I have found that many large organizations have multiple parallel (often redundant) R&D projects. Since the projects are not categorized in a consistent manner, it becomes extremely difficult for R&D managers to make effective decisions.
There are two practices that clients find particularly helpful in making the shift from a ‘project-up’ view to a ‘portfolio-down’ one. The first, that we came across in our current research, is from Deutsche Telekom and helps with the perennial problem of categorizing projects into the ‘kill’ or the ‘fund’ category. The firm’s T-Labs R&D group divides its portfolio into agreed zones to increase clarity of project scope and stimulate productive discussions on border line projects.
A systematic categorization allows organizations to aggregate data across projects and make strategic decisions at the portfolio level. Even when data is available, the portfolio decisions still need significant management intuition. A problem tends to be that this intuition is not uniform across managers and it is often difficult to quantify it. The article suggests voting as an approach:
The second is a client favorite from Ecolab , a cleaning services firm. Its R&D group developed a portfolio prioritization process that engages business leaders in the creation of high-growth R&D portfolios. Using an objective voting mechanism, senior managers rank proposed projects based on their potential ability to address the organization’s strategic objectives.
I believe a more useful approach could be scoring based on a uniform / simple checklist. A score for each project can calculated from the list. In addition to quantifying manager intuition, these checklists allow organizations to learn from success / failure of funded projects.
I have a few examples that I could share. Please send me an email.