Structure in Threes: Economics R&D
May 8, 2015 3 Comments
Been really business the past several months researching materials on Portfolio Management again. Business Design and Portfolio Management seem to be a common thread in the work I do and the issues I find within corporations. It appears that half the problem corporations run into is around business designs that are counterproductive to the goals and strategies stated by executive management. It seems like a giant game of telephone. Executives state a murky vision to the first level of management which alters the message to support their division’s goals and so on down the hierarchy. By the time it reaches the execution level, its still the same old way of doing things despite the need to change. When faced with the issue, each level says of course I’m doing what I was asked (e.g., switching to agile, but al that has happened was a language change for the same behaviors they already have).
The other aspect is prioritization. This one appears to be a more difficult nut to crack. Everyone wants to prioritize to account for multiple factors. However, when faced with realities of what it takes to do such most back off into a simple gut feeling rather than a data oriented approach. Part of that reluctance is due to fear that their items of concern will not be address in a timely manner, part is the effort involved in gathering the information, part is understanding how the math works underneath the prioritization schema, and part is being uncomfortable with uncertainty of answers. Corporations today seek to get the exact formula 1+1 = 2 of business. But the plain truth is its not 1+1, its (1+/- 20% + 1+/- 20%) in a random distribution adjusted for time.
The past two days I spend researching value calculations for IT projects. Reading a good book on the topic covering the economics behind Agile methodology: The Principles of Product Development Flow, Donald G. Reinertsen. He has –in my opinion successfully identified the lean manufacturing concepts that Goldrait and Toyota’s Dr. Ohno advocate for scheduling. There are some gaps in the approach: Value calculation of Intellectual Assets; though he brings up that financial does not address work in process value of such assets so proxies are used as a poor substitute.
While I don’t have the complete formula figured out to calculate IP value –current line of R&D — I did manage create a visualization of the concept of value capture discounting due to delayed introduction. When merged with the portfolio management approach I’m working on I’m sure the systems dynamic model will give a better prediction of results. I hope to implement some day as a service enterprises could use to be more effective.
Will be considering presenting this and other findings for an internal only conference at Microsoft (though nothing here is confidential). However, I’ll need to check with conference owner/management as to whether this will provide some value to the audience. It seems like more of this type of information while beneficial no longer has a place within that venue.