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Product Portfolio Management, Project Portfolio Management, Strategic Planning

Avoid the Haircut: Sustaining R&D in Difficult Times – Enrich Consulting

Published By Dr. Richard Sonnenblick

They are dark times indeed when each day brings another tale of an industry stalwart shedding 1,000, 2,000, or even 10,000 jobs. It is especially daunting when companies are forced to make those cuts within research and development, the lifeblood of innovation and long-term survival.

To our minds here at Enrich, there is an even greater tragedy: Many companies see staff reductions and cost cutting as a tactical measure, and thus lose out on the opportunity to refine and deploy a strategy that will yield real dividends in the long term. Companies like Intel and IBM who stayed on-strategy during the 1982 recession, for example, led the personal computer revolution later that decade.

The path of least resistance for executives is to tighten belts across the board. The executives will call for a 5, 10, or 20% reduction in spending in all divisions or functional areas. We call this a haircut because we’re just ‘taking a bit off the top’. Expedient and democratic, right? Perhaps, but there are several fundamental problems with this approach…

  1. This is one instance where everyone should not be treated equally. Your star projects need more funds and your less promising projects should be put out of their misery. By reducing all projects’ funding evenly, you dramatically limit the ability for any project to execute successfully, spreading fewer resources across the same portfolio (the ‘peanut butter’ dilemma).
  2. You’ll miss the opportunity to ask some hard questions about the products in your pipeline and to finally cut off under-performing projects that have refused to die time and time again. The funds those zombie projects drain could be used to increase the chances of technical and market success for your more relevant and promising projects. If your management team can’t kill the zombies now, when will they die?
  3. You’ll miss the opportunity to refine your corporate, technology, and market strategy, and remove projects that are secondary or irrelevant to your primary goals. Off-strategy projects should be deferred, sold-off, or abandoned to ensure that your primary strategic goals are met with available resources.

In times like these, R&D portfolio management and prudent, aggressive R&D spending is even more of a competitive advantage than usual. In 2009, you have a golden opportunity to review your portfolio and separate the wheat from the chaff. The challenge is to avoid knee-jerk reactions, and to take the time to perform an honest, no-holds-barred assessment of your strategy and your pipeline.

So, you’re not

[yet] the CEO or VP of R&D of your organization and are not yet able to mandate a strategic assessment of your R&D pipeline? Here are a few suggestions to get the ball rolling (in increasing order of difficulty):
  1. Compile current budget and schedule data for all projects in the pipeline
  2. Gather whatever information is available about cost-to-launch, months-to-launch, and innovation level (e.g., disruptive, innovative, line-extension, maintenance) for each ongoing project and provide this information to those involved in tactical pipeline decision making
  3. If available, augment the data noted above with value-focused information on market sizes, potential market share, competitive landscape, and revenue forecasts for each project
  4. Gather the results of project prioritizations undertaken in the last 12 months
  5. Build a series of straw-man portfolios that demonstrate how a subset of current opportunities could be funded without compromise, even with reductions in overall spending

With careful planning, your firm can use these ‘dark times’ to leapfrog your competitors and emerge stronger than ever when your customers are once again knocking at your door.

The Enrich Portfolio System is an effective cornerstone for the type of portfolio assessment called for here, but you could also undertake an assessment with a spreadsheet or even a pen and paper. The important thing is to undertake the assessment in a systematic, rational fashion! If you are interested in seeing for yourself how to use the Enrich Portfolio System to perform a pipeline assessment, please contact us for a hands-on, interactive demonstration.

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Written by Dr. Richard Sonnenblick Chief Data Scientist

Dr. Sonnenblick, Planview’s Chief Data Scientist, holds years of experience working with some of the largest pharmaceutical and life sciences companies in the world. Through this in-depth study and application, he has successfully formulated insightful prioritization and portfolio review processes, scoring systems, and financial valuation and forecasting methods for enhancing both product forecasting and portfolio analysis. Dr. Sonnenblick holds a Ph.D. and MS from Carnegie Mellon University in Engineering and Public Policy and a BA in Physics from the University of California, Santa Cruz.