Fewer than one in four senior R&D managers are satisfied with their portfolio management process, which is the process companies use to manage the mix of R&D projects underway.
R&D portfolios tend to suffer with many problems: such having too many low-value projects, to not having a good balance of projects from low-risk to high-risk or quick-to-complete versus long-term, having too many late projects, or just having too many projects altogether (see chart 1).
And this poor portfolio health can understandably have a real impact on the overall performance of the company. In fact, companies with healthy R&D portfolios are up to three times more likely to meet or exceed their five-year company growth goals than those with unhealthy portfolios, as measured on the portfolio health index below.
Chart 1: Assessment of R&D’s overall portfolio health Percentage of respondents agreeing or strongly agreeing; n=54 Source: CEB 2015 R&D Portfolio Management Survey
Don’t Protect Transformational Projects, Stop Investment in Incremental Projects
These unhealthy portfolios are putting company growth goals at risk by allowing R&D resources and attention to shift away from long-term transformational R&D projects (new-to-market innovation proposals with a high likelihood of providing significant growth for the firm) and toward more near-term, lower-value incremental ones (projects designed to support existing products or services).
Most R&D teams try to protect transformational projects in the same way they secure initial funding for these projects: by convincing those that hold the purse strings that their investment will pay off handsomely in the long term.
But senior business managers don’t need more faith in transformational projects. CEB data show that attempts to strengthen business partners’ belief in the value of transformational projects are significantly less effective at minimizing trade-offs and improving portfolio health. Rather, approaches aimed at helping the business avoid bad project decisions concerning incremental projects have proven to be much more successful.