Companies need a management body or committee to approve the initiation of new R&D projects into the R&D portfolio and to approve the continued progress and funding of projects through the New Product Development (NPD) process to their eventual launch into the market. This is called the NPD governance process (or system).
R&D Portfolio Governance Body … For “best in class” companies, the number and type of active projects within the portfolio is carefully managed by a strong governance body so that R&D resources are fully utilized but not overburdened by a large number of projects, and to ensure the portfolio is balanced.
Typically, most companies use a stage-gate governance process to manage R&D projects from Concept/Ideation through Feasibility, Development, Commercialization and Launch as shown below. However the difference between most companies and “best in class” companies is the degree of discipline and attention given to the governance process, especially by upper management, as projects move through gateways or decision points between the different stages. In some companies “lip service” is given to the governance process where they go through the motions and “check” the boxes but little thought or energy is given to the process.
A Typical Governance Process
Best-in-Class Governance Behaviors …
When done well, the governance process in “best in class” companies is distinguished by having many if not all of the following behaviors:
- Not all project proposals are accepted; some are rejected at initiation because projections don’t meet strategic, financial or marketing goals
- “Dog” projects are killed quickly so resources can be re-allocated to promising new projects
- Documentation is kept to a minimum, especially for the early stage gates
- Less detail is required for approval past the first gate (exhaustive marketing, financial and technical data are not required until the development, commercialization and launch gates)
- Many ideas/projects are generated in the concept/ideation stage and evaluated in the feasibility stage
- Very few consumer-validated ideas and product concepts are killed until the development gate
- The Feasibility-Develop gateway is where most projects are killed (this is the primary risk assessment gateway since substantially more money and resources begin to be used at this stage)
- Not too many projects of one particular “type” are approved so that the portfolio is balanced
- A strategic or holistic review of the portfolio is made periodically and the portfolio is re-balanced if required
- Every project killed is replaced with a project of greater value
- The governance process and meetings are run by a portfolio/project management group
- The members of the governance committee are empowered to make decisions and are typically heads of the functional groups i.e. Marketing, R&D, Manufacturing, Business Development or Franchise heads etc.
- For projects finishing the development phase, there is a high success rate to launch (60-90%)
- Project prioritization is used to rank projects in importance in order to allocate resources if bottlenecks occur
Common Traps … One of the most common governance mistakes is to continually add projects to the R&D portfolio, before existing projects are either launched or killed, which results in an over-loaded R&D group.
Another common mistake is not to prioritize the projects. R&D groups need a clear understanding of what projects are the most important from the commercial point of view. Without that prioritization, the work will be done, “first in, first out”. Here a portfolio management group that keeps a “scorecard” and portfolio “dashboard” is very helpful.
Another common trap is that the portfolio becomes unbalanced with a particular “type” of project dominating the portfolio. The Unilever example discussed in a previous post1 demonstrates how a disciplined approach to portfolio governance can dramatically improve a company’s performance. Prior to Paul Poleman’s appointment as CEO, Unilever’s portfolio had become dependent on too many small local-market projects and too few large global projects. A more disciplined approach to portfolio governance focused on fewer, larger projects with global appeal which enabled Unilever to improve its productivity and launch sizes.
Sometimes potentially innovative projects will not see the light of day because deficits in the R&D leader’s ability to influence can’t bridge the gap between R&D and other disciplines represented at the table. The R&D leader’s ability to influence other stakeholders is critical at governance meetings2. Communicating effectively to a multi-disciplinary audience in support of a new project or in support of progressing a project through a gate, especially if additional funding is required, is essential in governance meetings. I can think of several projects over my career where my gut was telling me “this is a great idea” or “I know we can overcome the formulation hurdles” or “the problem is the delivery mechanism and we can solve that” but I was unable to convince enough stakeholders. In hindsight, many of these ideas were commercialized by other companies, sometimes very successfully, and we missed some significant innovation opportunities. It takes courage, confidence and credibility to stand up, sometimes without all the data, and rely on your experience to convince others of what you know to be true in your gut. Even when you are partnered and aligned with Marketing on an idea or project, you may not be successful in progressing it because the company has decided on a different strategic direction. Then you must bow out with grace.
Summary … If upper management is fully engaged in the governance process, it will take a strategic approach to the R&D portfolio. The portfolio will be re-balanced periodically and there will be vigorous debates about projects as they move through the stage gate process. Importantly for innovation crescendo, there will be more product concepts proposed than R&D has the capacity to execute and the portfolio governance body will have to kill good product concepts to make way for even better product concepts to balance and manage the R&D portfolio.
- Perfecting your R&D Portfolio
- Leading an Innovation Crescendo Part 4: The Art of Influence and the Emerging R&D Leader
© Dennis Nelson 2013