Company assets were in dozens of billions of dollars in 2012 whereas its income was measured in billions of dollars. Despite an overall strong position of the organization, the executives of the company were somewhat concerned with a slow growth in revenues (4-8% per year) and net income (1-3% per year). Consequently they felt that the company was been falling behind the competition and, in the long-term, in danger of losing the leading position in the pharmaceutical industry.
The case study below is focusing on the organizational R&D projects – both pharmaceutical and diagnostics – while ignoring the maintenance and stay in business ventures.
Strategy
Just like in the previous example the company executives have developed a very clear unequivocal strategy void of any ambiguous goals. The strategy consisted of four pillars:
- No OTC products – the company decided to avoid the generic drug market altogether and focus on the prescription drugs only due to IP protection and higher profit margins.
- Five research areas – the company decided to focus its R&D efforts on five key pharma field including cardiology, cancer, infectious diseases, diabetes and neuroscience.
- Focus on personal healthcare - attending to the physical needs of people who are disabled or otherwise unable to take care of themselves
- Personalized drugs - drugs that can customized exactly to the needs of a particular patient, including the exact dosage and combination with other medications.
Scoring Model
The portfolio committee decided to employ the following variable in the construction of their scoring model:
- Market Attractiveness (How many patients are out there?)
- Strategic Fit
- Innovativeness
- Risk (both technical and market)
- Effectiveness
- Cannibalization
- Core competencies
- Competitors
- Financial (Revenue)
Table 1
|
Selection Criteria |
Points Awarded (Maximum possible 135) |
|||
|
Joker |
136 points |
|||
|
|
1 point |
5 points |
15 points |
Kill? |
|
Market Attractiveness (How many patients are out there?) |
Number of patients < X |
X < Number of patients < Y |
Number of patients > Y |
Yes |
|
Strategic Fit |
Fits only 1 of the strategic fit criteria |
Fits 2 of the strategic fit criteria |
3-4 of the strategic fit criteria |
Yes (if scores zero) |
|
Innovativeness |
Generic approach |
Mixed approach |
Unique approach |
No |
|
Risk (both technical and market) |
10% < Probability of success < 25% |
25% < Probability of success < 75% |
Probability of success > 75% |
Yes (if less than 10%) |
|
Effectiveness |
Low |
Medium |
High |
No |
|
Cannibalization |
Will compete with several other company drugs |
Will compete with 1 other company drug |
No competition with other company drugs |
No |
|
Core competencies |
No in-house knowledge |
Some in-house knowledge |
All knowledge is in-house |
No |
|
Competitors |
More than 3 competitors with similar products |
1-2 competitors with similar products |
No competitors with similar products |
No |
|
Financial (Revenue) |
Revenue < $A |
$A < Revenue < $B |
Revenue > $B |
Yes (if revenue minimal) |
The first category considered was directly tied to the potential number of patients in the market. The project proposal received one point for less than X potential patients, five points for between X and Y patients, and fifteen points for more than Y patients (note the decision to award fifteen rather than ten points for best performance; this way a company can skew their portfolio scoring to reward really good projects). Furthermore this category has been designated to be a “kill” variable for the project proposals targeting a very small number of patients.
In the strategic fit category the management, encouraged by the facilitator, to go with a simple measurable model: one point is awarded to proposals that fit only one of the strategic criteria, five points are given to the endeavors including two criteria and fifteen points – to the projects that incorporate three or more of the strategy goals. This criterion has also been selected as a “kill” category for the projects not including any of the strategic goals.
Innovativeness category, a fairly unique variable has also been introduced by the company’s management was supposed to echo the strategic goal of developing more personalized drugs, since this particular field required the organization to partially part ways with the traditional approaches to the new drug development. The points breakdown was as follows:
- Generic approach to drug development – 1 point
- Mixed approach to drug development – 5 points
- Unique approach to drug development – 15 points
Risk factor has also been included in the model and the executives decided to incorporate both technical and commercialization aspects into this variable. While this factor will almost always remain a subjective measure, the management made a decision to award one point for the probability of overall success between 10% and 25%, five points for the probability of success between 25% and 75%, and fifteen points for the probability of overall success over 75%. Projects with a probability of overall success less than 10% would be killed.
Perceived effectiveness of the drug was another fairly subjective category that was very difficult to accurately assess at the beginning of the project. However, it was hoped that as the product development nears its end, it would become more apparent to the management as to whether the drug possesses desired effectiveness.
The cannibalization category has been introduced to measure the effect of the proposed product on other company produced drugs. If the product was expected to compete with more than one of the existing company medicines, it would get a rating of one point, if only one medicine – five points, and the products that had no cannibalization effect on any of the company’s drugs – fifteen points.
Core competencies factor has been included with the following parameters:
- No in-house knowledge - 1 point
- Some in-house knowledge – 5 points
- All knowledge is in-house – 15 points
Number of competitors category has been included in the model to assess the competitive advantage of the proposed endeavor. The points have been distributed in the following manner:
- More than 3 competitors with similar products – 1 point
- 1-2 competitors with similar products – 5 points
- No competitors with similar products – 15 points
And finally, the project revenues category has been broken down as follows:
- Revenue < $A – 1 point
- $A < Revenue < $B – 5 points
- Revenue > $B – 15 points
Revenue has also been designated as a kill category for the projects promising to generate minimal cash flows.
To sum up the above model, the maximum number of points a project can generate is 135 and the minimum is seven. Four out of seven categories have been designated as “kill” factors making the above scoring model a very aggressive filtration mechanism.
Furthermore, considering the fairly large number of variables in the model (seven) future assessment and ranking exercises could have become a bit tedious, especially if there was a multitude of project proposals to analyze. Having said that, the executives of the company were made aware of this fact, but decided to keep all the variables, hoping to calibrate and cut the model if necessary in the future.
About the Author
Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca
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Jamal is an author of two very popular books: Delivering Exceptional Project Results: A Practical Guide to Project Selection, Scoping, Estimation and Management and Project Scope Management: A Practical Guide to Requirements for Engineering, Product, Construction, IT and Enterprise Projects.