How To Hold People Accountable for Portfolio Decision-making When Things are Uncertain?
Last updated: November 04, 2023 Read in fullscreen view
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In past ValuePoint articles, Don Creswell has discussed the “R&D Grid” which was introduced in detail in “The Smart Organization” book by David and Jim Matheson. The grid has been renamed the “innovation screen” in Portfolio Navigator® but the function remains the same: displaying projects within a portfolio based on risk vs. reward.
In this article, I will elaborate on the use of the innovation screen as experienced during my work with SmartOrg clients over the past decade, focusing on managerial accountability as part of the portfolio management process.
People working in New Product Development (NPD) or in Research and Development (R&D) have a management problem. How do you hold people accountable for results when there is an immense amount of uncertainty about whether the project (asset) will ever work and, even if it does work, will produce commercial results which, from this vantage point in time, are highly uncertain?
Accountability for managing these projects is certainly important – the near-term and long-term health of the company may well depend on them. However, accountability takes different forms, depending on the type of project.
Take the Innovation display, which divides New Product Development/R&D projects into four types: Bread and Butter, Oysters, Pearls, and White Elephants. Management accountability differs dramatically among these segments.
- Bread and Butter: These are projects which have a high probability of succeeding, but a relatively low value if successful – often product improvement or cost reduction type of applications. Essential to the near-term well-being of the company. Accountability for management of these projects can usually follow a common pattern: does the project come in on time, within budget, and meet its stated goals?
- Oysters: These are hard projects with a low probability of succeeding, but a high value if successful – often products or processes that will create new offerings to the company or revolutionize existing offerings. Essential to the long-term well-being of the company. Traditional accountability for the management of these projects would lead to a reduction in scope (value) of the project which would increase the probability that the project will come in on time, within budget, and meet its stated (reduced) goals, effectively becoming a Bread and Butter project. If this is not possible, managers will flee from this type of project. A more effective type of accountability would encourage the manager to:
- Find out as early and inexpensively as possible if the project is going to fail (“fail early if you are going to fail”).
- Choose among alternatives that increase/decrease the scope/value of the project and its probability of success.
- Steer the project to meet (or enhance) the long-term strategic goals of the company.
- Pearls: These are easy projects with large value – often Oysters that have come close to succeeding and may provide long-term benefits for the company. Bread and Butter type accountability works here, but care must be taken not to burden the project with unreasonable demands or expectations.
- White Elephants: These are projects that are unlikely to succeed, and would not be worth much if they do succeed; low-value expenditure of valuable resources, though sometimes mandated. Much like Oysters, accountability should emphasize “fail early if you are going to fail” and/or “try to improve the scope/value of the project”.
Given a good approach to accountability, the management of projects should become easier and a more attractive career option. However, people have to pay attention to the psychological effects of managing projects that fail. One employee of a major company comes to mind. Over a course of many years and many projects, he had never been on a project that succeeded! Rewarding and recognizing someone who has been on a project that fails may seem strange, but without this reinforcement, people will be reluctant to be part of “Oyster” projects which are the seedbed of products that may represent the future of the company.
In this video, SmartOrg’s CEO David Matheson gives a lecture on portfolio management at Stanford University. In his lecture, he covers key principles of portfolio management, prioritizing your portfolio, framing and better decision-making, as well as his signature portfolio simulation. David will further discuss the four different types of New Product Development/R&D: Bread and Butter, Oysters, Pearls, and White Elephants.
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