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Monthly Archives: June 2012

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30 06, 2012

Keeping Things Simple: Preventing Your Portfolio Management Software From Taking Over

By |2017-05-23T15:42:04-08:00June 30th, 2012|Blog|0 Comments

Detailed project valuations are often requested by executives, the basis being they will feel more confident in their decision making process if the accuracy of the forecasts is increased They might believe that adding detail to their valuations can accomplish this; however, this is inevitably not the case (All the NPVs are wrong, can we talk about the portfolio now?).  Excessive levels of detail often lead to poorer valuations because analysts spend less time on each input and are loathe to revisiting them when assumptions change.

Our most successful clients are the ones who keep things simple and manage to spend most of their time generating analysis and insights rather than inputting data. Almost all of them, however, begin with overly complicated models before scaling back to an optimal level of detail.

24 06, 2012

To Fund or Not to Fund: Helping Executives Get to “No”

By |2017-05-23T15:42:04-08:00June 24th, 2012|Blog|0 Comments

Another striking—and often underappreciated—aspect of

[Steve] Jobs’ success was his ability to say no. At a company like Apple, thousands of ideas bubble up each year for new products and services that it could launch. The hardest thing for its leader is to decide which ones merit attention. Mr Jobs had an uncanny knack of winnowing out the wheat from the mountains of chaff.

The Economist, “A genius departs“, 10/8/11

To fund or not to fund...

To fund or not to fund…

Asking most executives which projects should be killed results in Hamlet-like levels of self-introspection and angst. Why is it so difficult to say “no”?

The excuse we hear is that they don’t trust the forecasts, and without sound data can’t make a decision. Even if you believe this in your soul, the reality is that you’ll never have the “right” numbers. For the sake of argument, let’s say that a company possesses the only working magic 8-ball in the world, allowing their forecasts to be perfectly accurate. There are still a number of departments that contribute forecasts to each project’s valuation, and all of them operate on their own cycles for refreshing the data. This means there is never a point in time that the data is “fresh” from all of these departments, so the numbers are never perfect anyway.


17 06, 2012

Tied Up in Knots: Wasted Effort in R&D Portfolio Management

By |2017-05-23T15:42:04-08:00June 17th, 2012|Blog|0 Comments


“We can’t talk about the portfolio until you explain why Varmenase revenue is 5% less than last year’s forecast!”

In almost every large organization a huge percentage of the effort in the “portfolio” process is spent “tying out” the new project valuations with the old ones. Teams ardently create reports to explain why the net present value of cash flows (NPVs) have increased or decreased since the last reporting cycle, and exactly what assumptions caused the changes. They even have to explain in detail why the passage of time has changed each project’s value.

10 06, 2012

All the NPVs are wrong. Can we talk about the portfolio now?

By |2017-05-23T15:42:04-08:00June 10th, 2012|Blog|0 Comments

A review of Itanium server sales forecasts made over seven years reveals the same bias year after year after year.

A review of Itanium server sales forecasts made over seven years reveals the same bias year after year after year.

When the economist Kenneth Arrow was working as an air force weather forecaster during the Second World War, he and his colleagues found that their long-range weather predictions were no better than random. They informed the boss but were told, “The commanding general is well aware that the forecasts are no good. However, he needs them for planning purposes.”
David Orrell, The Science of Prediction, 2006

The first step in R&D portfolio management is to generate the list of projects that are under consideration and value them. Unfortunately, this is where many companies spend 99% of their effort, and too often this leads to countless wasted hours and benign neglect of the portfolio as a whole.


9 06, 2012

Is Your Innovation Strategy Actionable?

By |2017-05-23T15:42:04-08:00June 9th, 2012|Blog|0 Comments

Every firm we speak with talks about strategy, and yet for all the attention lavished upon the idea, few companies are able to craft a strategy that provides a clear path forward for the R&D organization. Why is it so hard? There are a wide range of statements that are interesting, useful, difficult to conceive, yet still fall far short of being considered a strategy. I cover a few of these below, and briefly outline a method we’ve seen capable of creating actionable strategies.

Mission and Vision Statements are Not a Strategy

“We will hire the best, qualified staff and reward them richly”
“We will provide a fun place to work and solve challenging problems”
“We will leave the world a better place and have fun doing it”
“We will lead the industry in mobile social networking platforms”

When written with care, mission and vision statements can set the tone for a subsequent definition of a strategy, but they are just the beginning. Statements like these make people feel good and have the illusion of bringing clarity to their jobs, but they don’t qualify as actionable strategy. Even the last one, stating a desire to dominate a product category, falls short of being actionable.


3 06, 2012

Are large companies doomed to failure?

By |2017-05-23T15:42:04-08:00June 3rd, 2012|Blog|0 Comments

graveyardIt is hard to open the paper these days without seeing a story presaging the demise of a another industry titan. If you believe the articles, Microsoft, GM, Xerox, Dell and many other bellwethers will face, at best, a slow, uninteresting decline due to their failure to innovate in ways that disrupt the markets in which they compete. Even Google and Facebook have been mentioned as established companies that cannot innovate as quickly or profoundly as they could when they were smaller, had everything to gain, and far less to lose. In The Power of Pull (Basic Books, 2010) John Hagel of Deloitte has calculated that the average life expectancy of companies in the S&P 500 has declined from 75 years in 1937 to a mere 15 years today. So is a descent inevitable for the larger firms?

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