Case Study: Major Medical Device Manufacturer
One large device manufacturer typically had 200+ projects at various stages across its R&D and commercial organizations. However, it did not have a consistent view of its portfolio as every project had different standards to measure value creation, and some didn’t even have a business case (even in late stage of development). Also, too often the value proposition of most projects was in the “head” of managers. Since executives did not truly understand the hypotheses on value creation, nor the target market, customers and value proposition, they were not in a position to challenge teams, and therefore kill low ROI projects.
The company decided to radically revamp their portfolio management approach by creating new portfolio manager roles, mandating a consistent process and business case template. It also held semi-annual portfolio reviews in cascade (BUs first, then roll-up at corporate level). This “new way” led to many new insights, decisions and actions to ultimately increase the value creation potential. Some examples include:
Executives found that the current growth pipeline was only covering ~50% of the company’s current valuation. This was a serious wake-up call to stop low ROI tail projects, and re-invest ~20% of its total innovation budget in new high-growth/high ROI projects.
About ~50% of projects did not fit in any of the strategic priorities. Again, this was a wake-up call to (1) challenge their strategy, and (2) kill projects that did not fit in the strategic direction of the company.
Too often business cases created by R&D teams had placeholders for marketing and sales line items. In one case, a low-end product for the China market assumed a standard sales expense from the US market. Not only did this under-estimate the NPV (sales channels in China were typically less costly), it also meant that the go to market strategy was a huge risk. This product needed a new go to market approach with new distributors, and this could not be achieved in 1-2 months prior to launch. The portfolio review forced R&D and sales to proactively create a plan.