R&D Evaluation and ROI Need Not Be Mutually Exclusive Concepts

After 20 years of evaluating research and development (R&D), I’ve learned a thing or two. The most notable lesson? Organizations are completely and irrefutably incapable of assessing the value and risks of their R&D. I’ve known this for a long time, but occasionally I am faced with a situation that reinforces the lesson. Take, for instance, the plots below based on a multivariate analysis.

 

 Internal vs external view

Analysis is designed to provide insight into the risk and reward balance of the investment portfolio. In the plots above, axes are composed of multiple strategic criteria with client assigned weighting factors. Target performance for each criteria serves to generate the four quadrants of the portfolio plot. Individual R&D programs are shown as bubbles. There is nothing wrong with either the math or the evaluative method itself. The problem is bias.

A CEO or chief technology officer faced with the above analysis has clear decisions to make. I can imagine questions like, “Why are we making these investments? What can I salvage? Whom can I trust? How do I use this to fix my problem?” But here’s the thing – while pointing to issues of bias, the above analysis nevertheless has power because it provides the clues that hint at solutions. At least this CEO knows he or she has a problem, because he or she can read the chart on the right. CEOs in organizations that only have the chart on the left have an even bigger problem, plus he or she is not even aware the problem exists.

We estimate that only one-in-five R&D organizations conducts a truly objective portfolio review, and yet, many CEOs wonder why their portfolios are not generating more value. The solution is straightforward: conduct an independent review that acts to supplement internal reviews. Both are necessary, and decisions made based solely on internal processes (even well-intentioned ones involving external customers and SMEs) will ultimately result in a suboptimized portfolio and one that disappoints in terms of ROI or transitions of new capabilities.

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