Pitfalls of Project Portfolio Management implementation

Computer World has an interesting IT Project Portfolio Management (PPM) article that is equally applicable to R&D management - just read R&D when they write IT :-).  They point out three dangerous myths of portfolio management:

1. PPM is IT's lookout
2. Right tools drive PPM success
3. The best starting place is PPM Best Practice

 In my experience, even the organizations that do PPM on R&D portfolios, often fall into some of these traps (I am not certain what fraction of companies have formalized PPM.  May be we will do a poll on this soon).  PPM is sometimes delegated to CTO or Engineering.  This has a negative impact on R&D team members because there is no clear customer for what they are developing.  

Another key problem is too much focus on tools and best practices.  I myself fell into this trap at one PPM implementation.  I was unaware of how little the organization new about their project portfolio (most were legacy R&D projects that had gone on for many years).  It was not wise to even attempt to implement PPM when there was no clear portfolio to begin with!

Experiements boost productivity

Here is another article that suggests that well planned experiments and statistical data can help boost productivity and drive productive discussion.
However, in my experience, meaningful experiments are rather difficult to do in R&D Management (as opposed to R&D itself).  Unlike manufacturing, where you can build the same widget multiple times and compare results using statistical analysis.  Since R&D is a process of generating knowledge, once development is complete, it rather difficult to do it again in the same way.

The same is true for companies, too – as many people who have presented management with information that didn’t fit the bosses’ worldview can attest. One way to cut through such problems is to use the same sorts of statistical methods that economists use to tease out the lines of cause and effect in complex situations.

What do you think?  Any examples on meaningful experiments in R&D management?

Do CEOs really know what they want from R&D?

Results of another industry survey - this one from Diamond - are actually the opposite of the IBM survey (CEOs want more creativity).  This survey shows that as the economy tumbled, companies were more focused on gaining market share rather than exploring white spaces and coming up with innovative products.

Looking for ways to recover from the recession, 57% of the companies surveyed by Diamond Management & Technology Consultants, Inc. plan to pursue a market penetration strategy that risks driving price competition and threatening profitability.

Innovation, often promoted as a panacea for surviving a downturn, is cited as a primary objective of only 16% of the respondents. And despite the economic climate, few companies (15%) see cost reduction (15%) and margin improvement (9%) as their primary objectives.

The other interesting finding of this study was that beyond the workforce there was little agreement amongst executives on what made them competitive!

Senior executives were asked what they believe are their companies' top strengths and weaknesses. Most see their people as their major competitive strength--61% rated it first or second. But beyond that, there was surprisingly little consensus about what capabilities keep their companies competitive. Only 14% cited the "ability to deliver" on corporate programs and other initiatives as a top strength. Furthermore, customer understanding (10%) and market understanding (10%) ranked unexpectedly low as major strengths, given all the money companies invest in customer research and data analytics. 

 The press release then goes on to talk about Diamond's service offerings and their value.  The lesson for me was about how little do these high level surveys actually produce.  In my experience, both innovation and incremental development are required.  Companies need to penetrate markets and enter new white spaces.  The actual task of achieving that requires hard work by R&D managers.  It is very difficult to get to that level of detail in a survey.

Why don't businesses experiment more

In a very interesting column in the Harvard Business Review, Dan Ariely writes about why organizations are willing to listen to experts and consultants but not do some experiments themselves and find the best answer:

I think this irrational behavior stems from two sources. One is the nature of experiments themselves. As the people at the consumer goods firm pointed out, experiments require short-term losses for long-term gains. Companies (and people) are notoriously bad at making those trade-offs. Second, there’s the false sense of security that heeding experts provides. When we pay consultants, we get an answer from them and not a list of experiments to conduct. We tend to value answers over questions because answers allow us to take action, while questions mean that we need to keep thinking. Never mind that asking good questions and gathering evidence usually guides us to better answers.

This is a very interesting observation.  I have often wondered why people higher such highly paid consultants.  One point that Dan does not make is an ability to CYA - the consequences of failure are much lesser if someone else (an outside expert) made the decision.  I guess people are recognizing this:

Despite the fact that it goes against how business works, experimentation is making headway at some companies. Scott Cook, the founder of Intuit, tells me he’s trying to create a culture of experimentation in which failing is perfectly fine. Whatever happens, he tells his staff, you’re doing right because you’ve created evidence, which is better than anyone’s intuition. He says the organization is buzzing with experiments.

Car Makers - A complex Web of Alliances

Here is a cool graphic from Financial Times that shows the complex web of alliances between various auto makers (registration required). 

The question in my mind is how do you synchronize and manage R&D is this environment?  Any learning whether from innovation or from risk/failure in one organization has to filter through to all related - because their products, subsystems and components are tied together at the hip.  How does one keep track of all of that?  Maintaining that flow  Managing IP and all the confidentiality will also be a nightmare.

Team recognition (as opposed to individual)

Recognizing teams for their contribution and balancing that with individual recognition has always been rather difficult.  The Corporate Executive Board has a nice list to factors to keep in mind.

• Recognize team behavior and accomplishments. It’s one thing to recognize a team for achieving a particularly difficult goal. It’s another to hold them up for the way in which they achieved that goal. Whether you are giving the team an award, acknowledging their accomplishment on the intranet or in a newsletter, or simply saying job well done in a meeting, talk about the specific behaviors that enabled them to achieve what they’ve done together.

• Do team reviews. Teamwork can often fall apart at review time when people are most concerned with their individual performance. Conduct a team review where you bring the team together to talk about their progress. Ask questions, such as: how did we perform as a team? Did we meet our goals? This may be done at the end of a project or at important milestones in a project.  Take this opportunity to recognize the team for the work it has done together.

• Encourage employees to recognize peers. Recognition from superiors isn’t the only form of recognition that matters, or motivates. Knowing that your team thinks you’re doing a good job is important to keeping people engaged. Encourage team members to recognize each other for a job well done. Allow a few minutes at the beginning or end of team meetings for team member to recognize their fellow team members who have gone above and beyond.

Mentoring

In an comprehensive article on mentoring (When Mentoring Goes Bad), WSJ provides some really good hints on how mentoring can work and what can go wrong.  Clearly, since the mentor has more experience, they need to decide how to choose the protege and how to guide them.

Questions to Ask Yourself

1. If you are mentoring someone, are you giving them enough of your time and interesting work?

2. Are the personality and work habits of your protégé similar to yours, and if not, are you able to make sure that doesn't get in the way of working together?

3. Have you and your protégé clearly outlined his or her professional-development goals?

4. If you are being mentored, is the work interesting, and does your mentor give you credit for any projects you complete for him or her?

5. Do you feel like part of a team, and are you treated in an open, respectful manner?

Mentoring in R&D management is quite difficult to begin with.  Quite understandable becasue the disciplines invovled are so diverse and questions so broad.  I have had mixed luck with being mentored.  One of my mentors still helps me move ahead despite the fact that he has moved on to a completely different division of the company.  It has been great to have his counsel.  One of my bosses just wanted to show off and talk about how great he was.  I was asked to start producing results without ever suggesting ways in which I could actually do that.  Any experiences you could share?

Borderless Innovation

Just like Open Innovation, there is another new trend in accessing innovation outside the captive R&D organization - Borderless Innovation.  The article proposes four different models:

• The Orchestra Model, which is highly structured and centralized. It is typically focused on upgrading an existing product or service that dominates a market, with tightly controlled ownership of intellectual property. Examples include the iPhone, whose developers have been releasing roughly 10,000 applications a month for use with it, or India's ultra-low-cost Tata Nano car, which uses a localized network to manufacture units from a fixed design.
• The Creative Bazaar Model, which is based on leading players in a particular market that want to acquire new ideas from small companies or individual inventors in order to broaden their range of products and market position. A case in point is Dial. The soap manufacturer aims to find 30% of its new ideas from outside the company through a program called "Partners in Innovation" that it launched with the New York-based United Inventors' Association, an organization founded in 1990 to foster education and support for inventors. 
• The MOD ("MODification") Station Model, in which ideas come from a broad, global community, with the goal of coming up with new uses for existing products. One example is Mappr, a photo service developed by Stamen, a company in San Francisco. As users of Facebook and other social networking sites tag open-source photos, they help to build a database that Mappr uses to create photographic guides to different geographic locations.
• The Jam Central Model has the loosest organizational structure and mission, often involving experts asked to solve problems that might not fit well into a large corporate profit strategy. For example, for the Tropical Disease Initiative, volunteer scientists are using open-source collaborative software to address Third World health problems, such as malaria and dengue fever. The medicine needed to cure these diseases does not have the recurring revenues that pills for chronic conditions have, so it attracts little attention from the big pharmaceutical companies.

 These are interesting models and each one if implemented effectively can bring significant benefits.  However, much is left unsaid about implementation.  Accessing innovation outside is not sufficient, organizations need processes, tools and cultures to mature the idea once brought inside.  This is easier said than done.  R&D teams frequently have Not-Invented-Here foreign body rejection of outside innovation (sometimes necessarily so because of the sense of pride in their team).  Also, developing maturation plans and resource requirements for outside ideas gets more difficult the more out-of-the-box the idea is.  Finally, these innovation seeds need special attention from the R&D managers to make sure they develop into successful products.

In summary, Borderless Innovation is a very good idea - if the organizations have processes, tools and metrics to manage it effectively.  A strong intellectual property management skill is also needed to protect all this innovation.

Focus on technology instead of customers if you want breakthroughs

A marketing study performed at University of Illinois at Urbana-Champaign shows that a technology focus is necessary to generate breakthroughs and that a customer focus only brings in incremental improvements.

Groundbreaking ideas spring most from companies that stress technology, rather than customer needs or staying ahead of competitors, according to research that will appear in the Journal of Product Innovation Management.

Firms that focus on their competitors or customers generate more new product suggestions than technology-based companies, the study found. But the ideas typically net only subtle advances, such as the slow evolution of wireless reading devices, rather than breakthroughs similar to the shift from compact discs to music downloads.

These results make sense intuitively.  The key point in my mind is that an organization needs both - breakthroughs and incremental improvements.  In fact, incremental improvements are critical for day-to-day operations of a business.  The need then is to achieve both through a balanced approach to R&D management.  A careful set of portfolio balancing tools are needed that allow organizations to fund breakthrough ideas and incremental improvements.

Performance reviews cause too much stress

The New York Times has an interesting article on the impact of performance reviews on supervisors and employees alike.

Annual reviews not only create a high level of stress for workers, he argues, but end up making everybody — bosses and subordinates — less effective at their jobs. He says reviews are so subjective — so dependent on the worker’s relationship with the boss — as to be meaningless. He says he has heard from countless workers who say their work life was ruined by an unfair review.

Some people are recommending doing away with review altogether.

“I say, ‘Throw it out,’ because it becomes a very biased, error-prone and abuse-prone system,” said Dr. Namie, the author of “The Bully at Work” (Sourcebooks, 2000). “It should be replaced by daily ongoing contact with managers who know the work and who can become coaches.”

I see the limitations with current system of performance reviews - especially in larger R&D organizations.  Each team member has at least two bosses - a project manager and a functional manager.  The functional manager can compare individual's performance to their peers, while the project manager can actually understand how well they have performed on a team.  The two managers communicate infrequently at best and many times speak in completely different jargons.  This results in the functional supervisor making somewhat misinformed decisions that she or he is not well prepared to explain.

“Who is the biggest source of stress on the job? It’s your immediate supervisor,” he said. “The pile of evidence coming out shows that if you want to be an effective organization or an effective boss, you’ve got to strike a balance between humanity and performance.”

I think a new system, process and tools are needed to provide continuous feedback in this complex world.

Using rivalry to spur innovation

Mckinsey Quarterly has an interesting article on how to spur innovation.  Their suggestion is to use rivalry to drive innovation.  As in the case of GE and reverse innovation in India, the underlying thesis is that innovation does not just happen - R&D managers need to actually provide the circumstances to fuel it.

One such approach is to through rivalry as it happened in Renaissance Italy.  The author proposes three approaches to get the rivalry going in modern R&D organizations:

• Forming teams. Competing teams could come from different divisions, include a diverse array of experts, and take explicitly different approaches to the same problem. After all, there are often many ways (sometimes coming out of different disciplines) to resolve an R&D challenge, and there is often no way of knowing which one is best without trying them out. Moreover, teams can have biases and narrow specializations, making it all the more important to have an explicit diversity of approaches.  
• Appreciating differences. During the Renaissance, paintings were placed side by side so that viewers could compare and appreciate them and other artists could borrow from them. In the same way, the various solutions that teams develop can be held up next to one another in order to judge them on their relative merits. On many occasions, ideas from one can be integrated into the other. Or a solution that is ultimately passed over can be sent back to the labs for development in new directions. 
• Conducting “market tests.” Another way to replicate the practice of paragone is to bring designs to an internal jury or group of customers and let them weigh and contrast the different solutions. In some cases, more than one of the products may find customers who appreciate them, just as Renaissance artists each had their own following.

If you have the luxury of setting up competing teams to do the same development, more power to you.  Clearly, the other two suggestions are valid however you decide to evaluate innovation.  Another interesting approach I remember is through "Theme-Based Innovation"  - something I read in an RTEC case study of Coloplast's go-to-market strategy.  They define launch slots for products and have a primary and an alternate candidate.  Whichever makes it goes first.  This way, you are not wasting any development resources.

Innovation vs. Group Think

Here is a really cool article from the Knowledge @ Wharton.  It deals with one of the major problems with any brainstorming event - Group Think.  They propose a new concept called Hybrid Brainstorming:
The key with innovation is not to get as many ideas as possible, but to get some exceptional ideas that can be game changers.  Any process that equalizes all the ideas contributed by everyone will be counter to the objectives of the brainstorming.  So the goal is to strike this delicate balance between being inclusive and looking for exceptional ideas.  Check out the article.  It has some interesting thoughts.

Terwiesch, Ulrich and co-author Karan Girotra, a professor of technology and operations management at INSEAD, found that a hybrid process -- in which people are given time to brainstorm on their own before discussing ideas with their peers -- resulted in more and better quality ideas than a purely team-oriented process. More importantly for companies striving for innovation, however, the trio says the absolute best idea in a hybrid process topped the Number One suggestion in a traditional model.

Necessity is the mother of - Innovation

A couple of articles on driving innovation through Reverse Innovation.  One is from Wharton School of Business and another from Forbes.  The article suggests that historically innovation happened in the rich countries and moved to poor countries and now it needs to start in the emerging countries.

Vijay Govindarajan, professor of international business at the Tuck School of Business at Dartmouth College, who spent the last two years as a GE professor in residence and chief innovation consultant, calls the company's strategy "reverse innovation". "Historically, innovations have always happened in rich countries," he points out, "But in the future, innovations will have to take place in countries like India and China, because this is where the bulk of the customers are. The needs are more pressing here and the sheer volumes will justify the investments that will be required for developing the appropriate products."

The reality is that the emerging market is becoming more attractive and the need to drive down costs to meet the economical realities of that market is driving innovation at GE.  The reduced costs then have a great positive impact on other markets as well.  Similarly, there is a need for products of all sorts - such as cell phones - that need to fit the budgets of a whole new population.

One lesson I am learning from this is that R&D managers need to create situations where the technologists are challenged to generate new solutions.  Innovation is not just about people sitting around and free thinking in a cool room filled with new toys.  I am wondering if there is a structured way for managers to come up with challenges that get the same result without "Reverse Innovation."

In any case, we can now safely modify Plato's quote to say that "Necessity is the mother of Innovation."

Great list of innovation management tools

Blogging Innovation blog has a great list of tools to manage innovation and ideas.  Tools to manage ideation are important and the author has put in quite a bit of work to generate a pretty comprehensive list.  Please also check out his word document on desired functionality.

In my experience, idea management tools are a subset of processes, tools and metrics needed to ensure that innovation pays off.  Managers need to find ways to quickly evaluate, develop and monitor innovative ideas.  There also needs to be an efficient approach to kill innovation projects that do not pan out.

One of the companies I worked at had a great innovation generation machine.  They gave out $20-50k for small projects that looked outlandish enough.  However, there existed no way to catch all this innovation and develop it further into delivered products.

What is your experience?  How is innovation management working in your organization.

CEOs really want more creativity?

Here is an interesting article in Business Week penned by a Senior Vice President from IBM.  The article claims that CEO priorities are changing fundamentally:

There is compelling new evidence that CEOs' priorities in this area are changing in important ways. According to a new survey of 1,500 chief executives conducted by IBM's Institute for Business Value (IBM), CEOs identify "creativity" as the most important leadership competency for the successful enterprise of the future.

There are a couple of key take aways in the article. 

1. CEOs have started valuing creativity and continuous innovation. 
2. CEOs want to be disruptive: "Disrupt status quo, disrupt business models and disrupt organizational paralysis." 

Clearly, all these things are very important to do - in any company, in any economy.  What the article does not explain is why the CEOs did not value creativity earlier!  Did they really believe that it was better to be unoriginal? Did they actually want organizational paralysis? 

The take aways are also very difficult to realize.  For one to disrupt status quo, one needs to understand what needs to be disrupted and what the desired end state should be.  To do that, an organization needs a good evaluation of its processes or a way to get that evaluation in the first place.  If you have that capability, then you probably do not have organizational paralysis to start with.  Driving innovation has always been a big challenge.

What do you think?  What are some examples of organizational paralysis that you have seen?  Are then any stories or challenges that you would like to share?

R&D spending does not guarantee profits

In an article that corroborates TI’s findings, here is a 2005 article in Management Issues suggesting that higher R&D spending does not necessarily result in better profits. In some ways the material is still relevant, especially if one wants to find savings in R&D budgets.

Companies which invest heavily in research and development may be wasting their money. According to a new study, there is no direct relationship between R&D investment and significant measures of corporate performance such as growth, profitability, and shareholder return.

The article has some useful data about the R&D spending on the top 1,000 global players:

According to consultants Booz Allen Hamilton, who analyzed the world’s top 1,000 corporate research and development spenders, innovation spending is still a growth business. This 2004 Global Innovation 1,000 spent $384 billion on R&D in 2004, representing 6.5 per cent annual growth since 1999.
And the pace is accelerating. Measured from 2002, the annual growth rate jumps to 11.0 per cent.
While the top 1,000 corporate R&D spenders invested $384 billion in 2004, the second 1,000 spent only $26 billion - only an additional 6.8 per cent beyond the top 1,000 spenders.

This article points out the need for coordinated processes R&D planning, project portfolio management and R&D investment management: “How you spend is more important than how much you spend.”
However, getting coordinated processes in place for planning, portfolio management and investment management is rather difficult. Add to it the complexity of aligning investments with changing market needs and project progress/delays, and the real task of guiding R&D and invention becomes rather difficult.

In other words, the study argues, it is the process, not the pocketbook that counts. For example, Apple’s 2004 R&D-to-sales ratio of 5.9 per cent trails the computer industry average of 7.6 per cent, while its $489 million spend is a fraction of its larger competitors.

What do you think? Do you have any stories to share about success or failure around project portfolio management? Or are there any challenges that you face that you would like to discuss?

Making Data Work For You

Here is an article from Forbes talking about how to make data work for you. The underlying presumption is that the data necessary to make management decisions is lying around in the company in different forms – the challenge is to mine it effectively and prepare the right kind of report.

The amount of data inside corporations is exploding. In fact, there has never been such a wealth of information available in the history of business, and there has never been the vast array of tools to dissect it.
CIOs are generating reports for business leaders that slice the data horizontally and vertically, project growth, calculate productivity and profitability, and compare all of this historically and competitively. They are even pulling out tidbits of data that may appear randomly and building models based upon recurrences that escaped notice by even the most astute teams of experts. But is all this stuff right?

The key challenge according to the article is to find the right kinds of skills that marry IT and business understanding to generate these reports. And that unfortunately, those skills are hard to come by.

You’re talking about creating a data model, but aren’t models inherently flawed? Look at what happened to Wall Street in 2007.
The problem with models is not so much that they’re difficult to create. It’s whether everyone involved agrees with the same semantics. If you want a revenue report or a profitability report, you need to figure out what should be included. Once you have clarity on that, the other steps are much easier.
Do these skills exist?
They’re not very common. We need a completely new skill set for the CIO and the IT department. They have to speak the language of requirements for the application as well as the business language of reports.

In my experience, getting hold of the right data to make effective R&D management decisions is a big challenge. The problem is not only that the data is fragmented across multiple tools and databases, but also the fact that the tools all use different jargon and structure. It is difficult, if not impossible to aggregate data across these fragments to generate meaningful reports.


For example, if one wants to generate project portfolio status reports automatically, one has to mine across project management, requirements management and financial management systems. Each one of these systems maintain their data at different, disconnected levels of abstraction. Even if it was possible to mine data from each one of them, effort needed to link them across each other would be cost prohibitive.


What do you think? Have you used automated data mining / report generation tools successfully? Are there any lessons learned that you can share?

R&D spending cuts sharpen vision?

A recent article in the Dallas News mentions that TI has cut its R&D budget by more than 25%. These cuts appear to be permanent.

Texas Instruments Inc., a legendary font of innovation, cut its budget for research and development by almost half a billion dollars in 2009. Those reductions are expected to stay in place this year as well. But the Dallas-based company, producer of landmark technology such as the integrated circuit and the pocket calculator, says the approximately 25 percent drop isn’t a sign of declining innovation. Rather, it’s a mark of a maturing, streamlined product portfolio.

TI believes that the cuts are actually helping it sharpen its vision on more important R&D and eliminate unnecessary efforts.
Instead, the company is focused on embedded processors and analog chips, the devices inside cellphones and other mobile goodies that crunch video and handle other complex tasks. 

“We’re looking at markets that were maturing or not developing the way we had anticipated” for cuts, said chief financial officer Kevin March.
One source of savings is that TI stopped doing much research into ways to mass-produce its products, leaving that work to manufacturers in Asia that crank out the chips. 
TI has also been extricating itself over the last few years from designing baseband chips that connect mobile phones to cellular networks.

The question here is the impact of sudden large changes in the R&D budgets on the overall health of the R&D project portfolio. An underlying theme is that organizations get complacent in their view of their R&D priorities. Or that unproductive projects are really difficult to kill once they have been funded for a while. A large discontinuity forces the organization to revaluate priorities and see how the R&D pipeline is aligned with the priorities.

A concern may be that a sudden large change may actually get rid of good projects along with the bad. One needs to have a good handle on what is in the project pipeline and what results those projects are targetting. If a good view of the pipeline exists, should there be a need for large changes? What is the need for large R&D direction changes if the organization has effective periodic R&D project portfolio reviews? Should not the weak projects be eliminated because their proejcted results would not meet requirements? If such a view of the pipeline does not exist, would not a large discontinuity be a difficult time to develop such a view?

What do you think? Has your organization successfully made large changes in R&D spending? If your organization has an efficient portfolio management process, do you think large changes such as this would be necessary or effective?