Balance in the R&T portfolio: the risk-reward equation: organizations should find an appropriate balance among the types of technology projects they pursue. Keep in mind that there are risks and rewards associated with any project and there may be several combinations that will work well.

After looking at tools for prioritizing R&T projects and programs *, the next step is to consider balance in the overall program portfolio.

Balance is judged against a predetermined technology strategy which should be linked to a framework of future business scenarios **. The technology strategy should be designed to give the best odds of developing and successfully exploiting competitive technologies it also should minimize the risks of poor technology decisions and blind alleys, regardless of which scenario or combination of scenarios unfolds.

The analysis strikes a balance between shorter term "bread-and-butter" focus (low risk for failure, but usually modest rewards) and a "silver bullet" focus (higher risk, but huge rewards)(Fig. 1). Parameters for each category can he rather subjective, but a representative example is as follows:

* Silver bullets: >$500,000 per year incremental profit; benefits >5 times the cost of the annual budget for longer horizon strategic research.

* Bread-and-butter projects: <$50,000 per year incremental profit; benefits 1-2 times the cost of the annual budget for incremental research projects and special skill services.

[FIGURE 1 OMITTED]

Every research or technology group needs to generate a continuous stream of value to the sponsoring business. This is accomplished in the bread-and-butter category with activities such as the following:

* Special skill technical services.

* Process and product support.

* Incremental research for process or product optimization.

* Development of special instruments and test methods.

* In-house expertise to avoid purchasing detective technology.

* Intelligence gathering and networking for good decision-making and strategic planning.

The important thing in strategy development is the balance between silver bullet and bread-and-butter projects, and making the appropriate trade-off decisions. In particular, be careful not to put too much emphasis on bread-and-butter activity, where the research function becomes de facto technical support. Also note that a few bread-and-butter projects may have unexpected silver bullet spin offs.

The other two project categories are "turkeys" and "question marks." Projects can easily become "turkeys" for lack of due diligence in monitoring the status of all projects, and they should be abandoned quickly. The "turkey" box becomes the last stage before the trash can. Exploratory research falls within the "question marks" category. It is the place where new ideas are tested, the place for the MO Concept and M1 Feasibility stage projects. It is the seed area for the silver bullets.

The balance of effort devoted to each of the four research categories depends on the culture and risk tolerance of the company or sponsoring organization (Fig. 2).

[FIGURE 2 OMITTED]

Another useful tool to aid the balancing decision is the notion of "strategic technologies," where the technology Focus for the research project may be categorized as emerging, strategic, or base (Fig. 3). This is similar to a categorization by technology maturity, where manufacturing technologies or products are categorized on an "S curve" as embryonic, growth, mature, or aging (Fig. 4). The scope for technological advantage decreases as technologies mature, with a corresponding change in focus for the R&T activity.

[FIGURE 3-4 OMITTED]

The balance between silver bullet vs. bread-and-butter vs. exploratory, and base vs. strategic vs. emerging is a matter of careful judgment by the technology strategy team (TST). A 30:50:20 split might work for the silver bullet:bread-and-butter:exploratory breakdown, for example, while a 50:40:10 allottment might be good for the base:strategic:emerging breakdown.

Benchmarking of priorities and balance shows that the number of projects required to achieve successful results increases rapidly as the probability of technical success decreases, and that the low probability projects produce the highest returns when they are successful. This experience shows that the TST must "tolerate" a significant budget allocation to many low probability, high-risk projects, in order to find the occasional winner.

Decisions on portfolio balance and priority will be linked to the level of sponsorship the business unit is prepared to make. This is one of the most vexing decisions for the TST in representing the business unit. It is made easier if a senior executive for the business is a member of the TST. If not, then some guidelines need to be in place.

Cost-reduction driven research is easier for operating management to recognize, and new product development is easier for marketing to support. If operating and marketing management have been an active and committed part of the scenario and business strategy development process, then research sponsorship decisions should flow naturally. There should be a significant portion of the research budget sponsored by both operations and marketing. A reasonable guideline for an overall technology strategy focused on both process improvement and product development would be 30%-40% each. For marketing to directly sponsor research, there should be some accounting in place to reward the marketing function as a cost center for product enhancement initiatives, independent of the operating function of the business.

LOTS MORE!

An 8-week, on-line Short Course, Managing Technology for Value Delivery, sponsored jointly by the University of British Columbia and TAPPI, will be offered from Sept. 10 to Nov. 5, 2001. For additional information, contact the course instructor (Alan Procter) at: [e-mail]

Course description and registration can be found in the Events section of the TAPPI web site www.tappi.org/public/events.asp or see page 61 for more information and through TAPPI's service line at 800 332-8686 (US), 800 446-9431 (Canada), or [phone].

* See p. 27 of the July 2001 TAPPI JOURNAL (Vol 84, No. 7) for a discussion on prioritizing R&T projects.

** See p. 31 of the MArch 2801 TAPPI JOURNAL (Vol 84, No. 3) for a discussion of future scenarios.