Crafting R&D project portfolios

OVERVIEW Uncertain, but promising, R&D projects should be treated as one of three types of real options, depending on their degree of technical and market uncertainty. Positioning options are designed to preserve a company's future right to compete in a highly uncertain technological arena. Scouting options are used to create information about customer needs and market conditions. Stepping-stone options provide a technological path forward for an organization's long-run technology strategy, while containing cost and risk as new knowledge is created. Corporations rarely distinguish between such options and product launches or line extensions, with the result that they are managed and valued inappropriately. The guidelines provided here can not only help determine the right category for individual R&D projects, but also enable designing a portfolio of projects that is consistent with a firms technology strategy.