How to achieve success in R&D and product development.

Success in R&D and new product development has as much to do with selecting the right products to bring to market, and resourcing them appropriately, as it does in the ability to develop those products in the first place. R&D organizations often have numerous potential investments they can make, but understanding which have the greatest likelihood of success in the market is a major challenge. A CTO of a large technology company recently told us, “If I just had the right data, I should be able to select those projects that will produce the most revenue.” If that were the case, he would have a perpetual money machine. That “silver bullet” single hidden answer isn’t a reality. R&D, especially at the early stages, is fraught with uncertainty. Data is often not available, or only at best a ballpark guess. Additionally, there are many qualitative factors that aren’t driven by data, but instead require experience and judgment.

With so many competing factors, and multiple stakeholders involved in the process, along with only a limited set of resources, how does one select the R&D investments that could have the greatest likelihood of success? It requires scenario planning. A recent study by Ventana research showed if a company can explore all scenarios around a given problem, 89% were able to choose the right initiatives to invest in. When they can only explore a limited number of scenarios, the probability of success falls precipitously to 55%. This article will discuss scenario planning and how best to frame scenarios, testing of assumptions and varying those assumptions under multiple potential future directions and converging on an answer with confidence rather than expecting to pick a single silver bullet.

What is a scenario?
A scenario is a framework of assumptions that has a specific set of outcomes. These assumptions can include what factors to consider (financial targets, earnings targets, feasibility, market share projections, likely effectiveness of the product); the priorities of those factors; metrics around what specific data means for a project’s performance under each factor; and also various approaches to resourcing the projects both in funds and full-time employees.

Convergence on success
The ability to change these assumptions gives the ability to create scenarios. One of the key challenges we see is in R&D leadership explaining to line-of-business or executive management why a particular set of investments in the R&D pipeline was chosen. If only one scenario exists, it becomes difficult to explain the tradeoffs made in the thinking about assumptions that lead to the outcome. Questions from the executives go unanswered, and confidence wanes. The ability to dive down into multiple scenarios with varying assumptions that help to answer critical questions is how confidence is built and convergence happens. What if we completely discount the financial targets because we all know it’s too early to make them? You need to rapidly make that change, eliminating any priority given to “financial targets”, to show the executives what changes are happening to the outcomes—the sooner the better so the questions and information is understood in the context of decision-making.

In order to select the right projects, the R&D process must be integrated into the strategic framework of the company. How do the R&D projects deliver to corporate strategic imperatives? How does the portfolio of R&D investments contribute to each specific imperative, and how do these portfolio contributions change the amount of delivery to each strategic imperative if the underlying assumptions are changed?

Getting away from the spreadsheet addiction
The beauty of spreadsheets is simplicity and power, but that’s also the drawback. They don’t enable users to develop scenarios in a collaborative and interconnected way. Employing advanced algorithms in spreadsheets is challenging. The ability to compare specific and discrete effects on the outcomes across portfolios, and to do this on-the-fly, is nearly impossible.

The silver bullet fallacy
Because of the intractability of the spreadsheet, and the difficulty of manually testing assumptions, it leaves the best of R&D managers and Project Management Officers with limited ability to look at the problem from all perspectives. The result is one perspective is relatively quickly settled on and defended—not because it’s the right approach, but because the spreadsheet has created the limitation. It leaves executives with questions, and doesn’t provide insights into multiple potential future outcomes. There’s no confidence-building convergence, but instead a series of questions and doubts that circulate.

Moving to advanced portfolio collaboration and analysis technologies can be daunting, but the ultimate payoff is much greater flexibility in prioritizing and selecting R&D investments, the ability to produce scenarios under varying assumptions with key insights provided through graphical visuals and more confidence in the ultimate R&D investment portfolio.