When the economy goes bad, it's hard to fight the natural instinct to conserve cash. That's not the best move to make when it comes to managing your product portfolio however, says Donovan R. Hardenbrook, principal of Hardenbrook Consulting. The end result for companies holding back on research-and-development during a downturn is "they don't have anything new in their product portfolio that is of interest to their customers," when better times eventually return, he notes.
Yet some companies are doing just that. Forty percent of respondents to a recent McKinsey & Co. survey said their companies were actively looking to reduce R&D costs. Hardenbrook suggests that there is a better method to managing research-and-development dollars. Rather than cutting back on R&D investments, the consultant suggests that manufacturers should get more focused in their portfolio management efforts. For example: Key on the projects that exhibit new technology, gain entry into new markets, or are of greater interest to your customers based on your market research. "Make investments in those versus trying to be more conservative and saying, 'I'll do another line extension of the same thing I've been doing for the last 20 years,'" Hardenbrook says. By the same token, a great technology without a current market also should come under scrutiny. It may make sense to shift those R&D dollars to projects with greater market potential.
Donovan R. Hardenbrook
- They don't reconcile portfolio with resources. "[Companies] want to embark on a new initiative or a new product, and they are not even sure if their organization can keep the existing portfolio going," Hardenbrook says. "They don't necessarily run through the due diligence of resource management."
- They don't look outside of their own four walls enough to understand the broad external forces that may impact where they should be taking their portfolio.
- A corollary to the previous mistake: They get complacent with their product portfolio, which results in line or product extensions rather than disruptive or breakthrough innovations. "You don't have the profit margins or the returns on investment on incremental," that you do with breakthroughs, Hardenbrook notes.
- They don't understand the voice of the customer.
- They have a tendency to rely just on metrics and data versus the common business sense they have about the market. "Every company has very sharp people," he says, adding that tools don't necessarily replace a sharp senior executive's knowledge and experience.
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