In 2013, a team of researchers from The Boston Consulting Group conducted an important study. They analyzed 842 individual drug candidates with a known development outcome coming out of 419 companies. Of these 842 molecules, 637 failed in Phase II clinical trial or later and 205 were approved. For each candidate, 18 attributes–ranging from the company’s size to the drug’s therapeutic area of application–were assessed for correlation with success or failure.
What the authors of the study found was that the strongest single factor correlating with the final success of a molecule was a high termination rate in preclinical or Phase I stages. In other words, companies making hard decisions about which project to terminate earlier in the project lifecycle did better than companies postponing these decisions for later.
The BCG team pointed out to what they called the “progression-seeking” behavior plaguing the biopharmaceutical industry. Although as many as 90% of all drug development projects will eventually fail, there is a strong trend to further advance failing drug candidates instead of promptly terminating them. Unfortunately, this trend in drug development is hardly an exception. It is a common problem in other industries as well: There is a lot of waste in corporate product development pipelines. And yet, time and again, we see projects that had lost any chance to succeed still linger for years, depriving R&D units of valuable resources.
Why does this happen? Part of the problem stems from the fact that in many organizations, employee incentives are tied to “project progression” forcing the development teams to invent new excuses to preserve the losers. Besides, as pointed out in a recent guest blog by Yusuf Jamal, SVP, Devices and Platforms for Western Digital, many teams fall victim to the “sunk cost fallacy” when, after spending time and resources on a project, teams begin defending not the project per se, regardless of its performance, but their prior decisions about it. Regardless of the reasons, “zombie projects” are alive and well in R&D portfolios across industries.
What is to be done? Organizations need to adopt a disciplined approach to managing their R&D pipelines. They should start regularly asking themselves which “zombies” they should get rid of to reallocate resources to high-value, longer-term projects. And they need to do this often–at least quarterly and, perhaps, even more frequently in dynamic industries characterized by rapidly changing customer behaviors and short product life cycles –and not annually, a mistake that many companies make.
Of course, there is no need to re-invent the proverbial wheel when it comes to terminating failing projects. This termination should be integral to Dynamic Innovation Portfolio Management, an “always on” process enabling enterprises to continuously monitor and analyze their innovation pipelines and make appropriate, real-time resource re-allocation decisions.
Portfolio management is a fundamental element of the innovation system that provides leaders with the insight, data, and visibility to make decisions on how to fund the right mix of projects across all growth horizons. During this process, individual projects are evaluated using criteria that measures value, risk, and alignment to strategic objectives. As a result, “zombie projects” are eliminated, giving space and resources to priority projects that maximize value creation.
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By Noel Sobelman