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  • Writer's pictureMitch Kossar

Roadblocks to Effective Portfolio Management

Before anything else, successful pharmaceutical business focuses on science and it's impact on patients. In our view, portfolio management is the next greatest driver. Unlike small companies, big pharma can leverage its size to prune and expand programs to maximize value. Yet rarely do portfolio management groups have the impact they should on their organizations. My aim here is not to criticize these intrepid professionals, but point out the biggest roadblocks to effective portfolio management. All these perspectives come from first-hand knowledge of portfolio management groups throughout big pharma.

Roadblock one: The Need for Independent Portfolio Management Teams

First, it may be useful to inquire why a separate portfolio management group is needed at all when perhaps the R&D organization, the pre-launch commercial organization, or the finance organization are all capable of playing the role of managing the portfolio. They all have their agendas, however. It is possible for the group to roll up into strategy but still needs to be separate to handle other roles, including project management at the team level and power over the governance calendar. These other tasks help in the execution of the portfolio strategy.

Portfolio management sometimes reports up through the R&D department. But this can also be a mistake. Pipeline portfolio management has to be integrated with business development and marketed products to give a corporate-wide view, and this is particularly tricky since funding from business development comes from the balance sheet, and marketed products are self-funded and have a higher probability of success.

Certainly, any self-respecting CFO wants a role in portfolio value maximization, but a pharma company controlled by finance may follow the numbers and not necessarily follow the science and the needs of the patients.

The role of maximizing portfolio value needs to come from an independent, but empowered group.

Roadblock Two: Ensuring Data Integrity.

This is by far the biggest issue for portfolio management. It seems trivial, yet rarely executed well. There are several challenges:

1. Each team project manager puts in data at his/her own pace and data are created without thought to the entire portfolio. It is hard to see the correct “snapshot” of time. There are no common data structures -> each team’s silo is not aggregatable to form a total picture at any given time.

2. Lifecycle management thought varies by project. So if one project just enters its lead indication and another enters in its entire lifecycle, comparisons between the two are worthless. This is particularly true in oncology.

3. Timelines, financial data, long-range planning data, and therapeutic strategy and forecasting data are often created by different departments, and data consistency is challenging.

4. PTRS (probability of technical and regulatory success) data are often manipulated and nearly worthless.

5. In dysfunctional environments (more common than we think) data are hidden, secretly overridden and used as a weapon for internal politics. Thus leaders get incorrect info and can make bad decisions.

6. Either no IT system is used (e.g.. spreadsheets or google docs only) or a poorly designed system is used (e.g., a portfolio management module of Planisware, an outdated piece of in-house software, or an adaption of MS Project). Data control becomes nearly impossible and requires a horde of professionals to corral and correct the information. Imagine the cost savings of avoiding this!

7. It helps if project management rolls into the same organization as portfolio management. With control of the project managers, portfolio management can greatly improve data collection. This is not always the case.

In our view, a typical portfolio management team can spend 90% of its time correcting data issues, which leaves little time for analysis, governance, team guidance, and strategic portfolio thinking. It is always an issue that is grossly underestimated by stakeholders and can burn out any portfolio management executive. It cannot be understated; this is the greatest problem to solve in portfolio management.

· Roadblock Three: Roles and Responsibilities. The Rock and The Hard Place

In many organizations, the portfolio management function becomes a reporting role, dutifully providing the summary of portfolio performance and health every quarter or so. As such, portfolio management is a cost center. Given its proximity to sensitive data and senior management, it is not hard to imagine portfolio management having a highly strategic role involving valuation and allocation of capital. However, as discussed, these activities run smack into the middle of the finance group, R&D, the corporate strategy group and the pipeline commercial leads (therapeutic area groups). The leaders of these groups are often powerful and can easily block messages they do not want to hear. This highly restricts the ability of the portfolio management group to provide unique strategic insight from their specific viewpoint. Finance owns valuation, generally, the TA heads own portfolio strategy within their purview, corporate strategy looks at corporate direction, R&D sets the pipeline agenda. Portfolio Management steps on all these toes. Yet only the portfolio management group with responsibilities in project management and governance calendar is uniquely positioned to provide a combination of strategic, operational and financial skill sets to outperform any of these other departments…if allowed.

· Roadblock Four: Staffing

To navigate this issue requires extraordinary finesse from the lead of the group and support from the CEO. In addition, the staff should be cross functional with people with backgrounds in strategy management consulting, finance, science and clinical. All these qualities have to be present at the same time…a tall order but an attainable one. Too often, portfolio management groups focus on reporting professionals, not ones with strategic backgrounds.

To clarify:

1. Only the CEO can provide the cover to allow the portfolio management group freedom. The CFO and head of the strategy are competitors. The CMO’s perspective may be too narrow as would be the head of R&D.

2. Even with CEO support, it is important for the leader of the group to have a strong voice but a deft touch. Using its role as controller of the governance calendar is a good way to assert authority yet be seen as a neutral gatekeeper to funding decisions, but diplomacy a must.

3. Portfolio management teams should attract up-and-coming talent from high visibility areas and be seen as a stepping stone to greater success. Many departments are filled with long-term employees and may get a reputation for being a dead-end job. Without extremely strong staff, the department will not be able to hold its head high as a peer of other high-level departments.

· Roadblock Five: Maintaining Excellence (Final Words)

So suppose we create a top-notch data management system, wonderful data, great staff, independence, a strong leader, and support from the CEO! We have a great portfolio management team. So how long will that leader stay in the function before a promotion to greater things? How long will these ambitious staffers stay in their posts? We have worked with great portfolio management groups before, but they often don’t stay great. A victim of their own success, the people move on, and someone has to make sure that all this subtle institutional knowledge is not lost and a commitment to excellence remains. High turnover both within portfolio management and externally can kill a high-functioning team just as it gets going.

The rewards of great portfolio management are clear, but we can see why so often, many big pharmaceutical companies throw up their hands and say “why bother”. We think that is a mistake.


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