Research and development can be the most productive and successful part of a company. With a business value driven R&D process and good portfolio optimization tools one can even tenfold the R&D value, making it by far the most successful part of the company.

1. R&D portfolio management as a tool for
strategy development and execution
10.10.2014 GloCell Oy 1
Theory, case examples and services

2. Executive summary
• Portfolio approach can improve R&D and innovation efficiency
dramatically. We have references for more that 10X improvements.
• Challenge is the political willingness to admit the current situation
and to plan strategy from there.
• Portfolio management is a function that measures how well the
current strategy is delivering, and highlights gaps. It will provide
strategic options how to fill the gaps and achieve strategic targets.
• Filling the gaps almost always requires a change/modification in
strategy. In order to execute the new strategy a new structure is
needed, as structure follows strategy. Portfolio will highlight which
way to go.
2

3. Executive summary
• Key success factor for implementing a portfolio steering is the reliability of the
data, this requires:
1. Innovation process that is focused on business value creation
2. Capability to do correct product project valuations
3. Ownership of the data needs to be with the business owner (P&L accountable)
4. All stakeholders are executing and held accountable for delivering the numbers
5. Data needs to drive decisions with consequences – budgets will be given or taken
away based on the data
3

4. Example: Utilizing portfolio management as strategic tool “company’s” innovation
output has increased by 12X
4
20%
30%
100%
120%
150%
300%
Year 1
R&D investment
110
200
150
130
ROI% of R&D investment
Year 2 Year 3 Year 4 Year 5 Year 6

5. Portfolio measures how your strategy is working
5
IRR,orNPVofprojectpipeline
Cumulative investment into pipeline
Corporate threshold
TAIL-END
1. Your tail- end is consequence of your
current strategy
2. Need to change/expand strategy to bring
in new TOP projects
3. Cutting the tail of current strategy
releases funds to re-invest into the new
strategy
Pipeline within current
strategy
New pipeline under new /
expanded strategy
This was achieved by realizing early - if the pipeline isn‘t delivering enough, our
strategy is wrong

6. Additional benefits of portfolio steering
• Initially will show that the organization is wasting a lot of resources on interesting ideas,
but without an idea how to get it to the market -> right sizing to get cost savings (-20%)
• Enables that projects actually gets stopped as the resources are pulled out (harder to
run submarine projects) -> saves money (-5%)
• Will highlight the bottlenecks in executing growth strategy (almost always will be either
few individuals with a lot of experience or external budget) -> organizational
development and internal/external resource ratio optimization -> improve speed to
market
• Aligns organizations cross-functionally behind common priorities -> project delivery
times will improve significantly
• Market success rates improve as people are focusing on market delivery and not project
delivery
• Good front-end business analysis speeds up the development as the funnel becomes a
tunnel
6

7. Key questions for every organization
7
Strategic planning
horizon (5-10 years)
Today
Base Base
Future
M&A
Innovation
Growth GAP
1. What is your growth target?
2. How much should come through
innovation?
3. Do you know the growth you are
getting from you innovation pipeline?
4. Is there a gap?
5. If yes, what are you going to do
about it?

8. Innovation process needs to be business value driven
8
Stage 2 Stage 4 LaunchStage 3Stage 1 R
18 – 24
months
2nd business
case +- 30%
Committed
BC(+-10%)
Business case development and project planning Development
G GGG
Idea generation Scoping Feasibility Dev. and scale up and
regist.
Launch plan
(+-5%)
Cum. Project cost
1st business
case +- 50%
Post Launch
Review
3-10% of project cost
90-97% of project cost

9. In a well working pipeline 30% of projects are stopped and 30% finish every
year - Need a flexible system to re-allocate these resources to new projects
9
• When ideas are mature enough
(Gate 3) they request funding from the
flexibudget
• Consumer value proposition
• Credible development plan
• Developed business case
• When a project gets stopped the
resources return to flexibudget3
Committed projectsNon-committed projects
Early stage projects Late stage projects
Not budgeted, only
seed money to move
projects forward
(+internal resources)
Budgeted projects, projects fully
funded to ensure project
delivery
Non-allocated
FLEXIBUDGET
pool
GATE
Feasibility Development Launch
Cumlative project cost
Flexibudget principles
Stopped poject resources
return to flexibudget
Allocated seed budget for
early stage projects
Flexibudget owned
by CEO

10. After all this – you have a system where numbers are owned by the business,
are as reliable as they can be, and people are executing against them
10
P
P
P
NPV
1
NPV
2
NPV
3
NPV
4
NPV
5
1st simulation
2nd simulation
3rd simulation
…
Run Xn
simulations to
produce a
distribution of
all possible
NPVs
NPV
Probability
Continuous distribution of all possible outcomes
and their probabilities
Since input variables can also be varied or
defined as a range with probability
distribution, Monte Carlo simulation also
includes a sensitivity analysis
The value of input variables as well as the route taken through the
decision tree is determined by a random number generator,
subject to the allocated probabilities
Variable 1
Variable 2
ProbabilityProbability
…
Good project valuation (ideal)
95% certainty
TODAY FUTURE
Leads to great pipeline decision making
95% certainty
TODAY FUTURE
Business unit A Business unit B
Tail-end for re-investment
Project pipeline

11. How can you implement R&D portfolio
management?
Services and Deliverables
Juhani Lehtonen GloCell Oy 11

12. Facts about Successful Innovation Development
• Innovation is the key to long term success
• The best companies can create 10-fold value
with innovation compared to M&A
• We’re talking about business and especially
about growth
• This cannot be outsourced to special
Innovation department or R&D
• The process of increasing the innovation
maturity is long, politically difficult and
strategic
• Company top level commitment is a must for
success
Juhani Lehtonen GloCell Oy 12

13. It is a growth process - maturity levels
• Level 1 – First development process, no shared ownership, no buy-
in from senior management (R&D driven)
• Level 2 – Commonly cross-functional alignment on process, first
simple criteria on project selection (political decision making),
front-end of innovation being built
• Level 3- Cross-functional process established with front-end
process, portfolio process in place, first transparency and portfolio
based decision making, no strategic steering of the portfolio
• Level 4 – Processes part of daily life, automated data handling,
project selection/decision making being tied with corporate
strategy
• Level 5- Portfolio data guiding strategy development, sophisticated
portfolio analysis methodologies to assess optimums in terms of
risk and return
Juhani Lehtonen GloCell Oy 13

14. It is a growth process with it‘s normal pains and gains
Juhani Lehtonen GloCell Oy 14
NegativePositive
Neutral
Maturity
Level 1
Maturity
Level 2
Maturity
Level 3
Maturity
Level 4
Maturity
Level 5
Breakeven
PerceivedBenefitAccrued
18-36 months
10 months
16 months
24 months
36 months

15. Implementation of 6 Principles
15
Key principles Main benefit In terms of transparency
Front-end, business value driven
innovation process
Value driven product development and
early stage idea of project value
Get project specific valuations, rNPVs
Capability to understand and scope
value in the front end
Manage projects to try to create
business value not interesting results
Risk perspective, different options,
scenarios/options
Clear roles, responsibilities and
accountabilities in the whole value
chain from idea to sales
Alignment with business priorities
Ownership of the numbers, trusting the
numbers
Process of giving money and
resources to value adding activities
Funding only value (as opposed to pet
projects, politics)
We are not making up numbers for
nothing – there is money and resources
available for projects if we find a good
quality business case
System to constantly re-allocate free
resources to new business
opportunities
High efficiency of resource use,
competition for very limited resource
Bad business cases are identified, and
stopped
All tied in with personal objectives
and compensation
Holding each other accountable for
results
Numbers mean something as people
need to deliver the projections
#1
#2
#3
#4
#5
#6

16. Overview of steps and schedule: iterative
• Step 1 – Planning of the process
• Finding the most critical development areas
• Setting the targets for portfolio development
• 1-3 months
• Step 2-N – Implementation of “6 principles”
• Process alignment and creation
• Tool creation and implementation
• Maturity level development
• 12-36 months
• Step N+1 – Handover to customer
• Case by case support
• Special assistance
Juhani Lehtonen GloCell Oy

17. Outcome
1. Innovation process that is focused on business
value creation
2. Capability to do correct product project
valuations
3. Way of working where ownership of the data is
with the business owner (P&L accountable)
4. Way of working where all stakeholders are
executing and held accountable for delivering the
numbers
5. Process where portfolio data drives decisions
with consequences – budgets will be given or
taken away based on the data
Juhani Lehtonen GloCell Oy 17

18. Thank you 
Let’s create growth!
1
8