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“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”
Company JKL, a leader in agrochemicals for a broad range of crops, has a severe budgetary restriction over the next 3 years. The company has made a policy decision to invest in early and risky technology platforms for a specialty business sector (that could emerge as a leading business sector within 10 years) and is trying to balance budgetary resource allocation between product life cycle management, pipeline projects, and technology platforms over the next 3 years.
Decision Frame
Given its strategic intent (to invest in a specialty business sector) and to grow its product line at no less than historical rates, how can Company JKL balance its investment portfolio to best meet its annual financial top line sales growth goals?
Decision Options
'Bet Aggressively' in technology platforms and 'Prioritize Projects' that support the breadth of the product line.
'Pick The Winners' in technology platforms and 'Continue Feeding The Product Line'.
'Invest Sequentially In Technology Platforms' to feed future growth and 'Focus On High Growth Crops' to maintain product line support.
Methodological Approach
Since the timeline of 3 years was deemed insufficient by PPVC to determine which of the technology platforms would be more likely to succeed, Company JKL agreed to conduct the analysis over 5 years. First and foremost, a Decision Analysis frame was applied to the technology platforms in that phase-specific investments were mapped out, pre-specified criteria for success determined, and probabilities of success by phase determined by Subject Matter Experts. The commercial impact of successful technology platform applications to future product development was not determined as this was deemed to be too difficult by the company. Nevertheless, annual risk-adjusted investments for each technology platform were determined and these were categorized as non-discretionary investments. Next, the pipeline was trimmed to focus on those project investments necessary to support a product line dedicated to high growth crops in all geographies. Finally, a marginal utility trade-off analysis was conducted to determine whether to increase investments in platform technologies or to support non-high growth product lines.
A linear program was constructed and, with risk-adjusted Sales as the objective, the optimal portfolio of discretionary project investments - in support of high growth and non-high growth product lines - was found. Because Company JKL had become accustomed to portfolio selection by project prioritization, PPVC ran a comparative analysis between project prioritization and portfolio optimization techniques on discretionary project investments in order to demonstrate the superiority of the latter methodology.
Recommended Solution
'Invest Sequentially In Technology Platforms' to feed future growth and 'Focus On High Growth Crops' to maintain product line support. This strategy enabled Company JKL to prepare for a specialty business sector that was selected to fuel mid- to long-term growth, while optimizing its discretionary budgetary resources targeted towards supporting mainly high growth product lines.
Postscript
Company JKL has had PPVC conduct extensive training across several functional areas in PPVC's CREOPMTM framework. To this extent, the company now has its own practitioners capable of conducting relatively sophisticated Decision Analysis and Portfolio Management analysis to solve complex problems.
