Strategy Is Who Works on What

Leadership sets the innovation strategy once a year. In practice, strategy gets set every week, each time a manager decides which project gets the next engineer, tester or regulatory expert.

The business units have more than a dozen pilots running. Most are past their planned end date. Each pilot has someone who wants to keep it alive, so the proposal on the table is to “park” a few. Meanwhile, leadership asks the innovation team for the next round of ideas, and the strategy deck still promises double-digit growth from new business.

These pilots pile up, because each one gets its people, money and time in a separate decision. As a result, leaders rarely see the whole portfolio in one place.

Noel Sobelman has spent 25 years on this problem, first running product lines and then working on portfolio management inside large companies. His new book, Innovation Portfolio Management: Linking Strategy to Execution, shows how companies replace one-off decisions with a single view of the whole portfolio.

In those companies, Noel keeps seeing the same problem: leadership signs off on one strategy, while people and money go somewhere else. His book lays out five steps to fix it, each building on the one before: see where people and money actually go, plan around the people you have, give the biggest bets their own path, make every review end in a decision, and change the habits that hold old choices in place.

In Noel’s experience, the distance between what executives call a priority and where people and money actually go is almost always bigger than leadership suspects.

One telecom company publicly committed to doubling its innovation-driven revenue in five years. At the same time, more than 60% of its R&D spend went to incremental and sustaining projects. A Fortune 100 consumer goods company pulled money from growth projects every time the quarter looked shaky, so its teams learned to stay emotionally detached from anything new.

Both portfolios tilted toward incremental projects slowly, over many budget cycles, because short-term incentives push teams toward safe bets. The long-range plan kept promising the board growth, while the actual projects, volumes and launch dates added up to much less.

The gap usually stays hidden until someone puts actual spend and headcount next to the stated strategy, broken down by innovation type, product line and horizon. Once leaders see the two side by side, they often find a different problem from the one they expected. A global chemicals company, for example, was convinced its weak growth from new products was an execution problem — because new offerings drove only 4% of its revenue growth, against an industry benchmark nearly three times higher. Benchmarking showed its execution was on par with peers. The problem was the investment mix: most of the money went to extensions in mature markets, with little going to adjacent categories or growth markets.

To see where people and money actually go, a company first sorts its projects into a few investment categories, or buckets. The buckets need three things:

After the chemicals company reset its allocation targets, new offerings consistently drove more than 12% of its revenue growth within three years, up from 4%.

Noel has a simple test for whether the buckets work: project teams should be able to tell, on their own, which bucket their work belongs in. If they struggle to place their projects, the buckets need redesigning.

New targets only help if there are people to deliver them, and in Noel’s experience, people run out before the budget does.

One consumer goods company spent three years improving how it ran projects, but time to market barely moved. The problem, Noel says, was capacity: the people with the right skills were tied up in too many other projects.

The bottleneck often sits in a shared function like Quality, Regulatory or Manufacturing, so the whole portfolio ends up moving at the speed of its most overloaded function. At the consumer goods company, development throughput improved significantly only after it cut resource-heavy, low-value projects and moved people to its chronic bottleneck functions.

To plan around the people a company actually has, Noel uses a simple tool he calls the water line. It works like this:

A global technology company used this tool in its product development process. It checked resources at every gate decision, kept one priority list for all projects and reviewed resources every month. Product launch delays dropped by 60%.

The water line also puts pressure on stalled pilots, the ones still running past their planned end date.

Naturally, every business unit pushes to keep its own pilots alive, so parking a few looks like an easy compromise. Noel’s rule: avoid “on hold” — only cancel or continue. The problem with on-hold projects, he writes, is that they have an uncanny ability to attract resources, because well-meaning people keep them on life support behind the scenes. Every portfolio has them, for anyone who looks hard enough.

Noel recommends three practices to get a cancel-or-continue decision on each pilot:

Teams will only suggest stopping a project if executives treat stopping as a good decision. At one industrial technology company, executives routinely met slipped schedules and revenue shortfalls with public scrutiny and budget claw-backs. In response, teams started padding forecasts and avoiding high-risk ideas altogether. That behavior only changed once executives began treating early-stage failure as learning, and celebrating the cost savings from projects canceled before full-scale development.

Because the water line ranks every project on one list, big new bets run into a problem. A new business needs a full team and serious money, so it has to compete with the products that pay today’s bills. When a new venture and a line extension compete for the same people and money, the line extension wins, because its forecast rests on years of sales, while the venture’s forecast rests on guesses. As a result, the venture gets whatever people and money are left over, which is often too little to build a new business.

The answer is to take the biggest bets off the shared list and give them their own team or their own funding. Each did exactly that. Tenneco set up a separate business unit with its own leadership team, so the new business could move at its own speed. Bard set up a corporate fund outside the business units’ own budgets, so a big bet stopped weighing on a single unit’s P&L.

Tenneco did much of its business in mature markets with thin margins. A small group inside the company saw that heavier electric vehicles would need a new class of suspension, and pushed ahead before carmakers asked for it. Tenneco carved the project out of its shocks-and-struts business into a separate unit, Advanced Suspension Technology, while the unit was still small. Advanced Suspension Technology got its own general manager, VP of finance, commercial team and product managers.

The unit started with paying customers. Its suspension for high-end motorcycle brands already brought in revenue, covered overhead, and showed carmakers the technology worked. As John Wehrenberg, who oversaw the unit, put it, being able to say “Come see it running down my line in Sweden or Poland” mattered enormously in an industry known for risk aversion.

Chinese EV makers signed on fast, and the first production line sold out within a year. Tenneco funded a $12 million second line by preempting other projects, helped by interest-free loans from customers who wanted the product. The unit’s returns ran two to three times those of the core businesses. Once the high-growth period ended, Tenneco folded parts of the unit back into the core.

A business unit that funds a big, uncertain bet carries the risk on its own P&L. Bard moved that risk to the corporate level with a Growth Initiative Fund: a corporate pool that business units competed for with high-potential projects. Winning projects needed a validated business case and strong evidence of clinical need, and once funded, they had the CEO’s and the board’s attention.

John DeFord, then Bard’s Senior Vice President of Science, Technology and Clinical Affairs, said the competition forced business units to sharpen their thinking, and the visibility created urgency. In his words: “Once you got Growth Initiative Fund money, you knew everyone was watching.”

Noel points out that Bard’s market cap roughly quadrupled before BD acquired the company in 2017. That kind of visibility, a small group of senior leaders making funding decisions everyone can see, is hard to get from a regular portfolio review.

The first three steps show leaders which projects should get people and which should stop. The leader's moment to act on that is in the portfolio review.

In practice, a review can turn into a long status meeting: Gantt charts, side debates about one project’s details, a 70-page deck. People leave unsure what the group decided. Peter Ray, a veteran portfolio leader at Novartis, Celgene and Bristol Myers Squibb, has seen what happens when nobody in the room plays the objective facilitator: decisions turn into debates “about whose argument is stronger.”

To make the review end in decisions, Noel recommends changing five things:

At one data communications company, changes like these turned the review into a real decision meeting. Business unit presidents had to present what they were investing in, what they were turning down, and why. Putting the turned-down projects on the table changed the discussion, because presidents now had to explain the trade-offs behind each choice. Noel made the point in a governance episode of Innovation Talks: “It’s okay to say no to things that aren’t looking as promising.”

At one biotech company, early-stage projects kept ending up at the bottom of the ranking, including some promising ones.

The cause sat in the score the analysis team used to rank projects. The score rewarded late-stage, low-risk projects, so safe bets rose to the top of the list.

Noel sees the score as a starting point for the decision team’s conversation, and he expects the analysis team to check it from time to time. The biotech company checked its score and changed how it rated projects. After the change, promising early-stage projects moved up the list, and spending on early research went up.

The steps above change who works on what. However, those changes only hold if the habits and incentives around them change too, because people will fall back on old routines as soon as the pressure eases.

Changing habits takes years in a large organization, so many companies reach for a faster fix: they buy a portfolio platform, set up the dashboards and expect the data to do the rest. Noel compares the approach to home fitness: “buying a software system and expecting it to improve your innovation portfolio management performance is like buying an exercise bicycle and expecting to get fit.”

Portfolio software disappoints because it automates whatever habits a company already has. If decisions go to the loudest voice in the room and teams distrust the data, the software speeds up those same habits. As a result, the old problems keep coming back, and the software gets the blame. In Noel’s experience, software pays off once the basics are in place: clear allocation targets, reviews that end in decisions, and resource data people keep up to date.

For that reason, Noel builds those basics first, with a pilot in one business unit whose leaders are on board. The pilot runs through a full review cycle on real data, so leaders see the portfolio as it actually is, often for the first time. The first cycle is usually bumpy, he writes, and it often surprises leaders, who see three things:

All three findings depend on knowing which people work on which projects. Building that record means asking managers to write down where their people spend their time, and managers often push back because they worry about losing their people. Carrier, the US heating and air-conditioning manufacturer, ran into exactly this problem.

When Bridget Sheriff took over engineering for one of Carrier’s segments, she found work assigned through relationships and personal requests. Who worked on what went undocumented. Managers resisted the basics, she recalls, asking “Why do I have to write this down? What are you going to do with this data?” They feared that sharing resource needs would get their people taken away.

To lower that fear, her team kept the first request small: managers only had to record which roles each project needed, such as an engineer or a tester, and start talking about what everyone was working on.

Then a quality crisis hit, caused partly by people spread across too many side projects. Because the role data was already coming in, Bridget could see which teams were overloaded and move people quickly. “That crisis gave us legitimacy,” she says. Over time, she adds, leaders moved “from names to roles, and from territory to capability.”

Bonus schemes can undo this kind of change. One digital services firm found that its bonus scheme penalized team leads whenever they gave up people to a higher-priority project. The firm fixed the problem by tying part of each lead’s bonus to portfolio-wide results. Noel suggests rewarding people at two levels: teams for delivering their own project, and leaders for the health of the whole portfolio.

The companies in this piece got results once people moved onto the work the strategy called for. The chemicals company reset where its money and people went, and within three years new offerings drove more than 12% of its revenue growth, up from 4%. Tenneco gave its new suspension business a team of its own, and the unit earned two to three times the returns of the core businesses. Carrier started by asking managers which roles each project needed, and that data let Bridget move people fast when a quality crisis hit.

For the business units with a dozen stalled pilots, the first move is a cancel-or-continue decision on each one, made against a water line for the people they actually have. The check below shows where to start.