Managing Research as an Investment Portfolio: Lessons from PARC


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any one of them can prevent us from achieving the potential return… even if technical risk and execution risk are not strictly independent.

Ranking. Once all the scores are calculated, rank order all programs and projects in descending order and take a look at the results. Do the top ranked and lowest ranked projects seem to make intuitive sense, or is something wrong with the scoring methodology? I guarantee that this data will spark interesting conversations among management and scientists/engineers.

The most productive discussions we’ve had at PARC have been around looking at the lowest-scoring programs and projects to understand why they were at the bottom. For the ones with high return scores and high risk, it was useful to understand which risk factors were dragging the scores down, and to discuss plans for mitigating the risks and improving the score over time. For the ones with low return scores and high risk, we had to think hard about shifting the target offering or market, or transitioning out of the program or project.

Step 5: Actively Manage Programs and Projects to Move Across Segments

A portfolio is not static. Assets evolve and programs and projects should be actively managed to move across boundaries in specific directions. A portfolio approach gives you the visibility and levers to shift your investments across segments over time to meet your target allocations.

In our case, the portfolio management tool also helped us understand the different roles that different programs play within the portfolio, so we don’t ask all programs to be all things. This understanding enabled us to be much more focused and productive in our quarterly management strategic reviews. We moved from one-size-fits-all questioning to tailoring the frequency and relevance of discussion questions for each portfolio segment.

Since we think of the Core segment as our being in “harvesting” mode and all the other segments as our being in “investment” mode:

  • Core programs should spawn new Scouting and Next-Gen projects. Because programs in the Core are expected to generate profitable revenue in the current year, our reviews focus more on marketing, pricing, and operations.
  • Options projects should move to the Core as they meet their technical and business objectives. Because Options are high-risk investments, we manage them more like ventures: with regular milestones aimed at reducing technical and execution risk, and requiring investment proposals that specify activities and resources needed to achieve the next milestone.

This movement is especially important if some of your segments are overweighted or underweighted. And it’s not a one-way evaluation process—the strategic reviews enable us to optimize each program using data from the portfolio. We try to understand what are the highest value applications for our technology, who are our highest value partners and customers, and what is the optimal order of risks to reduce over time.

Step 6: Measure, Refine, and Re-balance Based on Learning and State of Business

As with individual investment portfolios, it’s important to re-balance and adjust asset allocations annually based on the previous year’s performance, current financial goals, and risk appetites informed by the economic environment.

While portfolio management should be tied to execution and not just treated as a retrospective tool, nothing will be perfect out of the box. So it’s still important to … Next Page »

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Lawrence Lee is a Director of Business Development at PARC, a Xerox company. Follow @

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