Humans have always been and will always be storytellers. From the fireside tales of bygone millennia to today’s TV dramas and movies, the power of the narrative holds us in rapt attention as it both entertains and makes sense of the world around us.
How does this relate to pharmaceutical portfolio management? Essentially, portfolio management is about affecting change in an organization. But real, honest to goodness change is hard to bring about; what people will do to avoid change is the basis of many a sitcom. To initiate change, you need to make a compelling case against the status quo—you need to tell a great story. Your tale might unfold like this:
- Act I: Set-up, or “How We Got to Where We Are”
- Act II: Complication, or “We’re On the Road to Ruin (or at least mediocrity)”
- Act III: Resolution, “The Happy Ending—if we do portfolio activities A, B & C”
It isn’t always safe or easy, but whether you are an analyst convincing your manager or an executive persuading the board, telling a story will help you make your case, and do so in an effective and entertaining way.
How We Got Here/Establishing the Baseline
Your firm has obviously enjoyed some success, because the existence of portfolio problems is evidence of rapid growth and increasing emphasis on R&D productivity. It is important to acknowledge this success, signpost everyone’s contributions, and remind everyone of the risks that were taken to arrive at that success. To build a sense that your story is shared, your colleagues need to see the parts they have played.
Paving the Road to Ruin
Few will accept change, let alone embrace it, unless there is dissatisfaction about the present situation. So, what is troubling about the status quo? Making a case for change requires you to roll up your sleeves, assess the projects and products in your current R&D portfolio, and prepare some forecasts based on your current R&D pipeline. This forecast should include uncertainty: Historically, if a majority of projects under development do not make it to market, then the forecast should be adjusted for the expected attrition. The revenue contribution for each project should similarly be adjusted for uncertainty in market size and market share. To do any less would risk overstating future prospects and foster complacency.
Armed with these forecasts, your job is to spin a tale that encourages the decision makers to leave their comfort zone and try something different. If sales will decline or fall short of strategic goals, lay these facts bare. Solutions will come in the next step; your task here is to vividly describe a future that makes everyone uncomfortable.
One challenge you may face along the way is that quite often, there is no clearly defined, actionable strategic plan:
“Would you tell me, please, which way I ought to go from here?” asked Alice.
“That depends a good deal on where you want to get to.” said the Cat.
“I don’t much care where” said Alice.
“Then it doesn’t matter which way you go,” said the Cat.
Without a clear plan, you don’t know “where you want to get to” and there is little basis to judge the status quo. Whether you are trying to motivate more risk taking, more partnerships, or more R&D funding, you will have a difficult time pitching shortfalls without a concrete set of goals on which you come up short. If things are really dire, however, the lack of a strategic plan may not matter: revenue forecasts that fall or remain flat over the planning time-frame usually lead to a frank consideration of alternatives.
Toward a Happy Ending
Wrapping up your story begins with exploring your portfolio’s prospects for growth. After working with management to determine what changes in funding might be politically feasible, and with R&D teams to determine what changes in product plans and partnering activities might accelerate growth, you should build several provisional portfolio forecasts that set the firm on a course for success.
As when you crafted your status quo forecast, it is important to factor in technology and commercial uncertainties. In addition, methods like prioritization and optimization can help you consider novel combinations of project and platform investments with sufficient value to meet medium- and long-term goals. Just remember that “I performed a mixed-integer branch-and-bound optimization” is not your story! Methods are (dare I say ‘merely’) a means to an end: a viable portfolio. The portfolio should speak for itself in its ability to satisfy strategic goals while hewing to resource constraints.
Armed with a few provisional portfolios that possess a fighting chance of meeting goals, you now need to put these portfolios in a storytelling context. In Act Two, you established that things looked grim. Now you offer a glimmer of hope, if only everyone would be willing to think and act differently. How can your team be the heroes of this story, and what changes are required?
- More R&D funding?
- An increased willingness to fund risky ventures?
- Cancelling of unpromising projects?
- Acquisition of new technology platforms from an up-and-coming rival?
If you make these changes, what will you accomplish? Your story needs to make a compelling case for a specific path (or multiple alternative paths) forward that mitigates the weaknesses of the status quo. Now is the time to trot out your forecasts and illustrate what could be accomplished. It doesn’t need to be bullet-proof; in fact you should admit shortcomings and unknowns up front to diffuse objections. As you embark upon the agreed-upon path, new information revealed by your team will be folded into the plan, keeping them part of the story and improving the odds for a happy ending.
The Tale of the Doubled-Edged Sword of Growth
Through a series of clever discoveries, a mid-sized pharmaceutical firm with a two-decade history of slow but steady growth produces a blockbuster drug. They experience six years of double-digit growth and renovate all aspects of their manufacturing and sales operations to handle the increase in demand. As they come up for air, they realize that investors and analysts are expecting that rapid growth is the new normal for the firm. Act One of the story was already self-evident to these decision makers; they understood that their recent success had hinged on a single blockbuster. We were brought in to help the firm pick the compounds that would ensure continued growth in the medium and long term.
We helped the R&D team generate a status quo forecast for the next eight years based on products currently under development. When we adjusted the forecast for toxicity, efficacy, and regulatory risks, we had some bad news for management. The figure below illustrates the gap between the base case forecast and a revenue target that reflected continued growth for the firm.
It was time for the telling of Act Two; they couldn’t get there from here. We explained to management that we couldn’t pick the winners, because even if they funded everything available within the base case, they would still fall short of the revenue target. Management then asked us to factor in a number of promising line extensions that they felt would bridge the gap. The result is shown below. It helped, but when accounting for program risks, it was still insufficient to meet revenue targets.
Heated discussions among the decision makers pitted the business-as-usual mentality (relying on product line extensions and minor reformulations) against the reality that line extensions were insufficient to meet analyst expectations. Eventually, all the executives accepted the story that “business-as-usual” was no longer sufficient, even though it had carried them for nearly twenty years.
Now it was time for Act Three: Working with the firm’s portfolio analysts, we devised alternative portfolios focusing on several new innovation activities: boost R&D spending, acquire external technology platforms and product lines, and take more risks on new technology platforms in early stage research. Our assessments suggested that only a hybrid approach incorporating all of these activities could meet their goals.
The portfolio analysts told the executives a story of bucking tradition and aggressively pursuing multiple methods to boost the company’s innovation capabilities. We believe the power of the narrative helped management to realize that the only way to meet revenue targets was to increase early-R&D spending and concurrently pursue several acquisitions in adjacent markets. R&D had been asking for an increase in R&D expenditures for several years, but it took a compelling rendition of the story arc and a hard look at the gap between targets and the forecast to motivate management to open the checkbook. The forecast with this R&D budget increase is shown below.
As a final consideration, we provided an analysis that accounted for uncertainty in market share and market size. This analysis revealed the revenue target to be at the upper end of the range of plausible revenue forecasts. Management acknowledged that even with the increased R&D spending, the target would be difficult to reach without additional acquisitions in the interim.
What’s Your Story?
Storytelling in business is nothing new, and yet we see many portfolio teams overwhelmed by the details of forecasting methodologies, prioritization equations, and thick stacks of portfolio visualizations. It is important not to forget the power of a strong, coherent narrative. The visualizations you choose to share with management should support your story. Tools like the Enrich Analytics Platform can make it easier to assess the risk and opportunity of your current path, and compare it to compelling alternatives. But a tool won’t craft or tell the story; that is up to you! Reach out to me if you’d like some help spinning the yarn of your portfolio story during your next review cycle.
