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A three—page excerpt from our I2-page Best Practice Guide...
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Best Practice Guidebook

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Innovation Portfolio Manageme...
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The portfolio immagcinent process prioritizes.  monitors.  and evaluates the entire innovation portfolio

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KEY ‘i‘AKF. AW: Y:  Estaiblish strategy requirements and investment hurdles for innovations entering the portfolio

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Innovation Portfolio Management Process - Dow Agrosciences

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Innovation Portfolio Management Process - Dow Agrosciences

  1. 1. i Rnsl c,1~ 5-1‘! I l'. - N p I I. IlllKtl rIti| Ml»l14~Ilil'” A three—page excerpt from our I2-page Best Practice Guidebook: Innovation Portfolio Management Process ‘. D0wAgroSciences lln uvl1l‘ITlu! lh(k [nu-. r-. .ll’’ mp» m; hr- Jilin I rm: . Nulliun. .llfX)1ll n-wnul
  2. 2. rnu. ~.ic; v.~. uiiivAr~i |4 4 Best Practice Guidebook D l. IIlWltl ll-AMMl*MlIlfltlll"" 1 Innovation Portfolio Management Process GUIDBBOOK SUMMARY Firn1:DowAgroScient: es LLC Industry: Chemicals. Good ingredients. and biotechnology Headquarters: Indianapolis. Indiana. United States Geographic Footprint: Global Ownershlp: Ptd>llc—A wholly owned subsidiary ol Dow Chemical Revenue (2009): $4.5 billion USD Problem: Due to the size and scale of its innovation portlolio. Dow Agtosciences (DAS) finds it challenging to consistently assess project risks. compare projects. and measure portfolio value. Solution: DowAgroSciences employs a porttollo management system that uses standardized protect data to evaluate. manage. and compare projects individually and across UR entire portfolio. Buslnes Results: DowAgroSciences surpassed its 200|—20l0 Compound Anntnl Growth Rate (CAGR) goals by 8% by the end of 2008 and Increased the percentage of realized expected value by 50%. Hit uunicnts nit these pages are cnipyright D . ’0ll| Trust it Sullivan. All rights rcacrvcd. 3. Dow Agrosciences Resources Required: - Full-time process leader and one hallv or full-time administrator O Network infrastructure commensurate with size and scale of the business - Portfofio management consultant‘ and web-based software“ system totalling: - SISO-3300.000 USD start-up cost - $|50-3500.000 annual operating costs Appllablllty of Best Practice no Executive Functions: Function Appiiuiaany R&DI| nntmtlon . Corporate Strategy ' ' Dun consulted with Snurtflrg lur in software solution.
  3. 3. ‘lill ~i2 The portfolio immagcinent process prioritizes. monitors. and evaluates the entire innovation portfolio Use Strategy and Investment Criteria to Screen Projects Objective Set stmegy and investment needs for innovation projects. Key Participants Portfcaliii Miinugrmcnr Forum lPMFi The executive team. comprised of the R&D leader and Global BuslIc5$ Line leaders. meets annually to evaluate the portfolio’: strategic fit and funding allocation. Dim‘ iL: ti-Suctttcx il). ', i uses .1 t-l‘--l. i~ul. tntri. ',r. Itct. l flthnllllll)l1LIIl. |). {l‘l“CIlI lt‘IlI tii tratlx . tll mn«i. tn<-ti Ii iirt‘ utliu uiriiili ll‘ iii t'Vt‘lll . Ii i~iiiii_- [lYl9lll«l liiii: .iiiil . |lI run miiluplt iuir. lot lllt piitpim~. lllll1I| :i Establish Baseline Project Values Objective Develop C0lTll'1lE’( iv assumptions for ti-. :h project and enter them into the portfolio lllJl'l3gB"El‘il system Key Participants l. ci(: zl i'/ Iailcci Tran-3‘ The Portfolio Management Process Eliminate Project Risks and lmprtwe Value Objective Identify the indicators with the greatest impact on pr-oiect value and mitigate those uncertainties. Cross-functional. local market 1» rims cm« x iiiio-nation into me portiolici management system and pl‘l'l_'<l'I| l ti : tical pro]-. i" work. Prcii-ct Success Lri7di-rt These global project owners direct the attw. ti’ 5 of loci market teams and cross-luncuonal project care teams convrmed oi hi Til agy. regulatory. supply. and finance representatives Pn: .,- ; t Sutc- <2 Leaders report to lhetl’ respective Global Builnesl Line M ii igement Tc-aims (sec step 4). Assess Project Progress Objective Evaluate performance and '1 strategic fit of individual pffljfiffl and across business units. Key Participants Clubal Bu was Lin: filariagevv‘-en! Teams ICBLMTI The management team lor each business unit (BU) sets innovation strategy and manage: its product portfolio. ll. l l . . l. lU‘; llUi‘s l'l(()jl| I? ponliiliu tii thi lii| |uiiii: _tl1ri't' l| 'V('lI ~ Pr. iici I. . | ~inL; lc Illl(r. IlIllll lu~t-il on .1 [‘t‘sll| l| .'lI7IUll! |; N‘! .1 xpctihi. purpnw it'. i:. . .1 mt lll~CL‘llllL‘l ' Pmduil I mi—. i|| ptuircts llL‘ lI1lVlr‘. llI(>ll . tii«. l linr I‘l| ‘ll| l|lll in [lit mllllt‘ priuluu lixinil) l| ‘.i1.. lll f| Ll' | l|‘l| ILlt‘ ' IfIi. <iv1i's. ' l'mi‘—. ill pruduct lincx tlut l. tll uitdct (inc nil ll4i"s m. Irlu‘I C}, ',IIlL‘I| [~. i, L'-l'. -. pcwt tn. it. igi mt-nil lll L“lllLl Z» i-ll l‘wL | llL_<'- . Ill LlVri . -lvw _‘«IIi>lii- - . xiilliiiii lll _iii~ii-, tii. il [Min g_i. .i_ii_. ,-illl. itiiitHi, ;,i. i.. -nil‘l-. iii'1i‘iiil~i§~iii‘* 9 a “‘j Make Project and Portfolio Investment Decisions ,4 . /_ Objective Perlorm annual project prioncizatlon and iunding allocation. Key Participants Fort, ’t~‘ii: Muiicgt-iiir: ht Fririini (PMH ‘FLIV th. tt qu. tliIt lllf ltiiidiilu. l): ' l| lllt. IlllIlI ptniistts ll‘ liiuik uc li. ii ll| I]‘l| l|(‘l l): ‘ | l|lllll‘ll rul iiiiiii. itiiiii ruigiiti
  4. 4. KEY ‘i‘AKF. AW: Y: Estaiblish strategy requirements and investment hurdles for innovations entering the portfolio l)A$' I'nri/ iilin . ’il. in.1grnmi! I-nrimi (PMH llSi’$ tbrrc . 'l. ‘7'('(’IlHl_L’ rriti'ri. i iii drrvriiiiiii’ N‘/ .'('l, }(‘I .1 P"I[('L'l Shtlllltl c‘Il! (‘7 tlzc purl/ u/in I1itUlilgi. ‘IlI£‘IIl 5_'SIt'lIl imii 7’(’t‘('Il 't' / umiirig Qualifying lor the Portfolio Management System . .5 V . . i 7 - .5 , ~ . “ * is the project in one of OAS‘ _ What it the project's 3 m": ?:‘: 'md: ':vPe'°’°"': ::: d‘: : hr ' , ‘ml’ / mates‘: mirkeur , ' . me qde “age, / / its life cycle classification? The Market Attractiveness Matrix helps determine DAS' To ensure an optimal blend ol new and mature products. ‘ PMF lollows predetermined investment hurdles to ability to achieve a profitable long-term market position i‘ -1 PMF gauges the life cycle stage ol any new product determine innovation eligibility in the current budget The PMF updates the Matrix every two years to anaiyzr. under ccinsidei-ation. cycle. The classification system removes the least strategic its portfolio. identify attractive markets. and dcti: -rrninc Entirely new innovation: are auton-inucaily cl, -mined proiects and gives insight to the expected value DAS where to increase or decrease investments. 3, ~-. .-mg, " F,3,¢¢u_ wmie an mhcr gnnoyuiong am shouid realize from its investments. ci. is<ii‘- 1 bi'- d on the their lile cycle stage and market‘; :. ::iictivei~- '5 (per the Matrix). Market Attrnctiveness Matrix (illustrative) Product Line Life Cycle Stages Classification and Hurdles ii NV i i: ,=r, w : em‘-o MANAGE renew K i . MANAGE _ . . , asri INVEST GROW ozrtiso my CASH Market 7 Productivity 7 W 7 Awqcuygnegg Rate iNPvI >5 >l0 AIS >20 _ Coul . . V Y . . t. _ ‘ gm‘ ‘y'"‘‘ "" >15» >407. not i >753 M ate ri llrriirn) . l OAS Compflmw suwgm T‘ ‘ Payback Year: '4 ID yearn <8 yeirs I‘ <6 yo in i It ye sri Market Attractiveness j Competitive Strength D -2 to these projects‘ Because these projects F3“°" F“°°" iii ‘ll growth and have a low teiitial lor 9. P0 - Growth rate - Market share profit p-zrizntial. their future growth and their . 5,” . gang equity iiivutmcnt hurdlei are profits are more at risk. their investment hurdles are relatively high. - Distribution reach '“‘-"“""Y '°""- - Profitability « Politicallsocial factors - Technology lactors Project “X" Illustrative Example idea Proicct X is a nu: insccucidc line extension A rice line extension project Falls into the "deicnd“ . ' As a "Manage for Cash" invcsuricnt. Proicct X meets the ‘ repiacing an L‘Xl§(ll‘g product in three years Rice _ product Iiic cycle stage, However. given DAS' weak [required investment hurdlt-s—--Productivity (22:l per 3 ii a large but weak inarlet lor OAS. given its many competitive position in the rice rV: i‘l(i: L the PMF spent). IRR (76%). and Year; to Payback (2 ycars)~and competitors, low pritcx. and low margins downgrades it to "Manage lor Cash. " / ‘i therefore enters the porilol-o mznagcmcnt process / 1|“ , .ii, ,_, -. .. ii t; ill; _4'-, I|l L-i| '1_'iii _‘ilIllili. . _ | liil. iIi ili ‘mi i. .,t. t.ii ill ii. .,. i. i.. i_i, ,., -i l Ii , ii. iiiiLv, i.i. ..ii‘i- i-. ill' il‘llli*4 i»! vi; ~ ‘‘ Vi_‘IlLil

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