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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  • I observe an interesting parallel with how donor portfolios/research are managed in nonprofit fundraising, more specifically at a classical performing arts org with a ticketing component to our business. Our system is a simplified version of PARC’s with emphases placed primarily on:

    1) Numerous nonstatic, always-evolving segments identified by cross-functional team members within our department (Asset Classes)
    2) Internal ranking systems that we establish through prospect research with attention to inclination (Target Allocation)
    3) Dollar forecasting via our development officers, based on donors’ affinities and overall research (Categorization)
    4) Our qualitative assessments through real-life interactions and observations (Evaluation)

    Just as PARC has for early-stage projects, we have a different procedure to deal with new donors, dependent on their existing level of activity with us. There’s less emphasis on hard-number scoring than may occur at PARC, but can be explained through our constant interactions with real people on a daily basis and their active participation with our organization.

  • Thanks Catherine for your comment – interesting parallel! I think nonprofit development is well suited for a portfolio approach. For your segments (asset classes) I am guessing that you create different segments of donors. But do you also consider other types of economic activity, including earned income activities?

    For example you could have a portfolio segment called “entrepreneurial ventures” composed of projects that are not correlated with fundraising. For a performing arts organization, these might include projects that are aimed at creating new products, such as recordings. By creating a budget allocation for this segment based on your financial goals and risk appetite, you can encourage your staff and community to brainstorm new project ideas and then prioritize the most promising ones to fit within your budget.

  • Terrific post Lawrence. Based on my research, I definitely advocate managing innovation as a portfolio too.

    One point that you touch on at the end is very important – you mention that the framework does not include early-stage exploratory projects. I think it’s essential for organisations to have some kind of method in place to ensure that these are happening too. It can be a formal tracking mechanism, or it can be something looser. But one way or another this needs to happen, since this is really the start of the pipeline.

  • Thanks Tim, and I absolutely agree. I think every organization needs an innovation culture and infrastructure that aligns resources, incentives, and tracking for early-stage idea exploration, not only for internal R&D but also with customers and partners in an open innovation model.

    We’re fortunate that innovation is a core part of PARC’s DNA, and because of that we have several mechanisms that support ideation and exploration at the local research-division level as I touched on briefly (some of these include for example peer review, etc.)

    For other organizations, you may need to create support systems to give employees the space to work on exploratory projects (something like Google’s 20% rule) until they get to the point where it makes sense to review them as part of the portfolio.

  • Hi Lawrence, thanks for your reply. Yes, in addition to our regular donor segments, we absolutely do have specific designations for a variety of project buckets. They are too numerous and nuanced to name here, but everything related to new productions, stage settings, our technology suite, facilities, younger audience development, education programs, etc. These are our mainstay of how we attract repeat donors, based on their interests they either have revealed to us or we have discovered through research. Otherwise we wouldn’t be able to raise as much money as we do.