The purpose of portfolio management is to select a set of projects that best fits the company strategy. However, ask three senior executives in your organization for the company’s strategy, and you may well hear three different answers—if you get any answers at all. Strategy, it turns out, is an elusive beast, especially the well-crafted, unambiguous strategy that says explicitly what the organization hopes to accomplish.
We discuss well-crafted strategies, and how to create them, in much more detail in our post on innovation strategy. There, we outline a method to build a strategy in collaboration with the executive team. But if the strategy isn’t self-evident, and you’re not in a position to facilitate a strategic planning workshop, what can you do?
One possibility is finding the strategy hidden in (inferred by) your existing R&D portfolio. Assume (pretend?) that your portfolio is driven by a concrete, actionable strategy. Then ask and answer a series of questions to discern the driving strategy. You craft this inside-out strategy from the bottom up, rather than from the top down, so begin with an inventory of the activities R&D is currently engaged in:
- Where are you spending money in R&D today?
- Which projects have been guaranteed funding? How much, and for how long?
- What non-R&D activities also compete for funds from the same sources?
It’s important to create as comprehensive a catalog as you can. Don’t make the mistake of omitting maintenance projects, IT initiatives, or infrastructure projects; if they compete for funding, they should be included in the “hidden strategy” exercise. As you compile your list of current projects, you might be surprised (or not) to find redundant initiatives and projects that many thought were cancelled still limping along.
Next, look at the projects themselves.
- Can you describe the arenas in which these projects are focused?
Many companies consider a matrix of market segments by technology platforms useful here, but it’s most important that your arenas are defined in a way that’s mutually exclusive (so that all projects unambiguously fit in only one arena) and collectively exhaustive (so that all projects fit somewhere).
Now, you can look for a strategy.
- What are the strategic goals that might be accomplished by the projects inventoried in each strategic arena?
Once you’ve sketched out the current portfolio and taken a stab at the implied strategy, present your handiwork to key decision makers. Making the implied strategy evident is a powerful tool for change: Nothing breeds discontent with the status quo like an honest, complete assessment of current portfolio spending.
The easiest way to understand this exercise is to see it in action; here are three (stylized) examples of its application.
Example One: Risky Business?
The management team of a life sciences company considered themselves risk takers in a risky industry. But a sober look at the portfolio suggested otherwise. In the portfolio landscape we see here, the portfolio is depicted according to its distribution across innovation levels and disease areas. This visualization revealed that, while 30% of the company’s R&D funds were invested in breakthrough projects, all of that money represented only 3 of the nearly 50 projects in the portfolio. The vast majority of projects involved exploration of existing drugs against new disease targets and reformulations to improve effectiveness or ease of use.
![Each bubble is a project, with bubble size representing cost to launch. This landscape of [mostly] reformulations was a revelation to management.](https://media.planview.com/enrich-blog/wp-content/uploads/2016/03/hidden_strat_case1.png)
Each bubble is a project, with bubble size representing cost to launch. This landscape of [mostly] reformulations was a revelation to management.
While devoting 30% of funding to breakthrough projects seemed appropriate in the abstract, the actual view of the portfolio suggested otherwise: This firm’s hidden strategy actually focused on existing drugs and reformulations, rather than on committing the resources required to invent entirely new drugs. In speaking with the executive team, it became clear that management was interested in blockbusters, but not yet convinced enough to commit the funds required to improve their chances of a new drug approval.
Example Two: New Frontiers?
Executives in a high-technology company expressed a desire to break into new markets by creating entirely new technology platforms. But when they inventoried their projects, they discovered the majority of their investments were in existing platforms. And the projects in the new platforms were also a concern—only one of them was internally developed; all of the other new-platform projects were licensed from other firms.
Title the hidden strategy in this portfolio ‘More of the Same’: Starve new platforms and fund incremental improvements.
The portfolio landscape view lays this out clearly: $4.6 million in spending is outside new platforms vs. just $1.2 million spent within new platform areas. The latent strategy seemed to be to fund incremental product improvements in existing product lines while investing only a fraction of resources in developing new platforms. With this information in hand, the executives were more willing to invest additional funds in early-stage research within the two new technology platforms.
Example Three: Death by a Thousand Cuts
The management team at a high-technology company felt there wasn’t a dollar more to spare on R&D projects, even though the company was falling far short of its strategic goals around innovation. The portfolio landscape, broadened in this instance to include all initiatives—not just R&D—told an interesting story: the company was investing extensively in IT, manufacturing, and miscellaneous initiatives. The strategy implicit in this company’s portfolio prioritized almost all non-R&D initiatives over early-stage R&D, suggesting that the company was more interested in infrastructure and product improvements than in basic, potentially breakthrough research.
‘Savvy’ departments dominated the portfolio of initiatives, and thus the hidden strategy as well. This left the stated priority, early stage product research, out in the cold.
This visualization shifted the conversation from “Where do we find funds for research?” to “Are all the other initiatives across the organization more important than new research?”
Choosing a broader scope for the conversation made all the difference in understanding the options.
As these three stories demonstrate, a landscape view of the portfolio that tallies spending and value across strategic arenas is a valuable tool for discovering the hidden strategy in your portfolio. If you like the visualizations used in these examples, check out our free online tool, the Enrich Bubble Builder, where you can use your own Excel-based data to generate visualizations like this in seconds.
