Portfolio Management and Investible Units

This is not a numbers game. There are no probabilities, contingencies or risk mitigation+ across R&D teams. Done well, in World Class R&D we won’t have anything to count! Each and every Investible Unit+ is of the highest caliber and is fully expected to succeed by everyone involved. Any of a half-dozen or more prototypes being worked on by any one Unit can push to the finish line at any point in time. Failure is exceptional because we only name or designate a ‘prototype’ very late in the game, when it’s assured it will be a success. Up to that moment all an outsider will be able to document is an amorphous collection of ‘research’.

The term ‘portfolio’ carries with it a lot of baggage: dross actually. Much of what passes for Portfolio Management easily earns the designation Worst Practice. Consider the session titles for a typical portfolio management conference in the pharmaceutical industry:

  • Effectively Communicating Analytic Methods for non Analyst Decision Makers
  • An "Options Approach" to Portfolio Management
  • What is More Important to Manage Risk and Uncertainties: Process or Tools?
  • Incorporating Resource Planning into Portfolio Decision Making
  • Pipeline Risk and Project Prioritization in Clinical Development

Just the titles belie their inappropriateness for World Class R&D. They look to manage the process or the numbers, and not the people. They suffer from the blindness of cheap heuristics+. They have an underlying belief that creativity can somehow be organized, harmonized, pasteurized and sanitized. Individuals offering these solutions suffer from falsification bias+, confirmation bias+ and a host of other cognitive errors. They are ignorant of the messiness, chaos, and distaste for rules that underpin research in a World Class R&D organization (and indeed are found in the messy world of investments).

Instead in World Class R&D we have very simple expectations of Portfolio Management. Each project team will line up against its competitors and tout its achievements for the prior period: obstacles overcome, opportunities grasped, successes realized. And they spell out what they expect to achieve in the coming year. We, subjectively and independently, assess these claims across all the teams, and decide which ones are blowing smoke in our eyes and which ones are smokin’ hot. Nothing’s counted. Nothing’s added together. No dollars are mentioned. Risk Management is nowhere to be seen.

Success is a combination of ingredients: the science, the management and the people. We judge these separately as part of our planning for the future. Is this pursuit still capable of blockbuster+ success? Are they paying their way as they move toward this success? Is the passion and excitement of the team palpable? Can we improve one or more of the ingredients and do even better?

This is the only way to truly judge the achievement of a team: on-the-ground and day-by-day. This is the role for independent evaluation – an assessment of team progress that independently takes into account all the obstacles and opportunities they faced during the year. This is our portfolio approach. It is often very difficult for an independent evaluator+ to gauge the progress of any one R&D pursuit, especially when the team has wide latitude in their original scope. However spread across several pursuits and several independent evaluators it becomes easy to determine which teams are performing and which are merely coasting.

We have a portfolio of R&D pursuits, each founded on an expertise that will lead to a scientific competitive advantage. Each pursuit has potential for multiple blockbuster products. We lop off under-performers based on an expectation they will not achieve blockbuster results in a reasonable timeframe. We deliberately make room for new blockbuster pursuits with each passing period, either through growth or replacement. There is no fixed number of pursuits, merely a cost of capital that limits the attractiveness of borrowing to fund the best of the best out of a very large selection of attractive opportunities. This is Portfolio Management in a World Class R&D organization.


Home Page May 2010

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