Here is an uncomfortable reality in all but the smallest firms during their R&D portfolio management processes: Between the staff running each R&D initiative and the executives making project and portfolio decisions, there’s usually a division. Maybe it’s the gap between headquarters and lab, upstairs/downstairs, east coast/west coast, London/Singapore, or even a generation gap. At the very least, it’s an information gap, and one that can transform a portfolio review into a detailed project Q&A session.
At one firm we worked with, it played out like this: Each executive arrived at the portfolio review meeting with 3-5 questions about various projects:
- “Please explain the market segmentation.”
- “Why did the NPV of this project double since the last meeting?”
- “How does the introduction of XYZ by our competitor affect our market share for ABC?”
These questions, in turn, led to additional questions and extended discussion. With more than a dozen executives in the room, the questions easily filled all the available time (hours and hours). At the end of the meeting, a few projects had been canceled because the science or the market seemed insubstantial, but most projects passed through the executives’ gauntlet. However, with all the attention paid to individual projects, there was no opportunity to consider the portfolio as a whole.
As in so many other firms, this “portfolio review” meeting was business as usual, so it’s no surprise that executives often bemoan the fact that “we never make the hard decisions necessary to truly change the direction of our portfolio.” They really don’t have a chance—an actual portfolio review session is perpetually postponed due to lengthy questioning. Executives have questions about the projects when they haven’t come to trust the valuations, or the staff performing the valuations, or both. It’s as if there were a big…gap between them
Building Trust in the Portfolio Process
The key to avoiding an executive interrogation session and holding an actual portfolio review is to build trustworthy and credible valuations before the portfolio review meeting. The figure to the right highlights important tool- and methodology-related factors for building trust.
It is no accident that many of these trust-building factors are key features of the Enrich Portfolio System:
- A single enterprise database warehouses all current and historical project information.
- The EPS connects to other enterprise applications to share data including schedules, project resource requirements, and actual sales.
- Audit trails enable a complete view of each project’s history and forecast over time.
- Uncertainty analysis allows critical inputs to be estimated as ranges or with scenarios, and propagated through the business case using Monte Carlo simulation.
- Global data such as staff class rates, market sizes, and currency exchange rates can be changed in one place and immediately impact all project business cases.
Building Trust in the Valuations Themselves
Don’t let your portfolio review meeting degenerate into Portfolio Jeopardy
In addition to these steps—and arguably most importantly—the executives need to believe the forecasts themselves. If the executives haven’t had the opportunity to test the forecasts before the portfolio review, then it will become the focus of the portfolio review. One executive called their portfolio review meetings “Portfolio Jeopardy” because their meetings consisted almost entirely of ad hoc interrogation of the individual projects.
Given the gap mentioned earlier, it’s only natural that executives would need the opportunity to actively examine, discuss, and understand the forecasts before the portfolio review meeting. We’ve seen several different tactics employed to achieve executive buy-in to the forecasts:
Schedule seminars where executives play the game of Portfolio Jeopardy. Executives know that decisions will not be taken at these seminars. The objective is to build consensus around the validity of the forecast, key risks, schedule, and the valuation for each initiative. These seminars are the right place to push back on fundamental questions of science, technology, and market for a project. Ideally, these meetings should be opportunities for fertile discussions where new opportunities can be explored for the benefit of all involved. It is no question that this is a difficult balance to strike, and productive seminars walk the line between two opposing outcomes: perfunctory meetings where nothing material is challenged and inquisitions that demoralize product teams and breed fear.
Hold a series of town hall meetings for project teams to attend where the science, technology, risks, market, etc. can all be explained, and consensus on the appropriate forecast can be gained. Town hall meetings are an excellent way to share knowledge within R&D while simultaneously vetting the valuations. The atmosphere at these meetings, attended by peers within R&D, should be collegial. Conversations held here should help screen out any projects whose valuations were performed halfheartedly, treating portfolio management as a fill-in-the-blank activity. In one chemical company we worked with, project review meetings could be attended by just about anyone and everyone’s input was welcomed. The atmosphere was more like a graduate student colloquium than a business meeting. These meetings made everyone feel like they were contributing to something larger than just their own project, task, or role. Even though they produce animated films, Pixar holds meetings to review “dailies” where anyone from HR to accounting can provide feedback on the movie scenes in production. Note that the meetings at Pixar are daily to provide timely, actionable feedback. Your firm may not require daily meetings, but are annual reviews sufficient?
Some of the most successful R&D organizations we’ve observed employ some form of both town hall and executive review meetings. In other organizations, executives may attend the town hall meetings so long as they don’t steal the show. The more sunshine that illuminates the activities of each R&D team, the more successful the organization becomes. Consider how often a VC will talk with their portfolio companies’ executive teams: once a month is common and once a week or more is not unheard of during pivotal periods.
This brings me to the most important point: Trust is a by-product of a vital, dynamic development process that actively solicits constructive feedback from peers and executives with the aim of leveraging the best minds and experience the company has to offer. If you are testing your product ideas with your colleagues within the firm (and of course with your customers and prospects), you stand the best chance of delighting your customers when your product launches.
Preparing for the “Real” Portfolio Review Meeting
With trust established, don’t tempt fate by starting the portfolio review meeting with a detailed list of every project’s financial metrics. Do that and you’ll risk taking the team back down into the weeds of the individual valuations. Prepare for the portfolio review meeting by carefully crafting portfolio alternatives, and begin the meeting by presenting these alternatives together with a thorough explanation of how they align with strategic goals. As we explain in other blog posts, tell a story about each prospective portfolio’s ability to meet strategic goals. This will set the tone for the portfolio review, and ensure that the conversation focuses on strategic targets rather than individual project idiosyncrasies. With the focus on strategy during the portfolio review, executives have the motivation necessary to effect broader, more sweeping change in the R&D portfolio. Here’s hoping that your portfolio review meetings feel less like Jeopardy or Family Feud, and more like Let’s Make a Deal.
Read case studies about how our business forecasting software, the Enrich Analytics Platform, helps companies improve their R&D Portfolio Management decisions. For more information, contact us.
