Selecting balanced portfolios of R&D projects with interdependencies: A Cross-Entropy based methodology

The intensive growth of technology makes firms rely on research and development (R&D) activities in order to adapt to technology changes in an ever-changing and uncertain environment. Due to R&D budget constraints and limited resources, firms are often forced to select a subset of all candidate projects by means of project portfolio selection techniques mitigating the corresponding risks and enhancing the overall value of portfolio. Projects' interdependencies and types were rarely considered in existing models of R&D portfolio selection that may result in selecting wrong projects. This flaw hinders the projects alignment with corporate objectives and strategy and leads to excessive risk and missing the promised values. In this paper, a balanced set of R&D project evaluation criteria was proposed. Next, to construct R&D project portfolio, a 0–1 nonlinear mathematical programming method for balancing portfolio values and risks was proposed, in which research projects' interdependencies, types and other constraints were all considered. Finally, a Cross-Entropy algorithm was developed to solve the proposed model and results were reported. The algorithm proved to be very effective in terms of solution quality and computational time. The proposed algorithm especially suits large scale instances while exact approaches are doomed to fail.     

A multiple criteria methodology for priority based portfolio selection

This paper presents a new methodology combining multiple criteria sorting or ranking methods with a project portfolio selection procedure. The multicriteria method permits the comparison of projects in terms of their priority based on qualitative and quantitative criteria. Then, a feasible set of projects, i.e. a portfolio, is selected according to the priority defined by the multiple criteria method and satisfying a set of resources and logical constraints. The proposed portfolio selection methodology is called Priority Based Portfolio Selection (PBPS) and can be applied in different contexts. We present an application in the urban planning domain where our approach allows us to select a set of urban projects based on their priority, budgetary constraints, and urban policy requirements. Given the increasing interest of historical cities to reuse their cultural heritage, we applied and tested our methodology in this context. In particular, we show how the methodology can support the prioritization of the interventions on buildings with some historical value in the historic city center of Naples (Italy), taking into account several points of view.     

Partnerships and the private recruitment industry

This article, based on a postal survey and qualitative interview‐based research, examines the relationship between major private recruitment bureaux and their clients in the UK, with particular attention to the recruitment and selection of temporary workers. The private recruitment industry is growing and large bureaux are seeking closer partnership arrangements with clients. Contracts for labour services are being developed on a 'preferred' supplier basis – similar in type to the approach taken for the purchase or supply of goods or components. However, formal preferred supplier contracts with temporary work bureaux were used by only a minority of clients, usually larger organisations or those having projects or workplaces with high volume demand. While such bureaux seek models of relational contracting or partnering, many clients prefer less fully engaged or 'semi‐distanced' relations facilitated by the informal dimensions of inter‐organisational contacts.     

Technology transfer, licensing and the speed of endogenous technological change

As licensing contracts usually require the licensee firm to purchase tied inputs from the seller of the technology, the licensee firm has an incentive to embark on an R&D program for development of substitutes for the tied inputs. This paper characterizes the licensee firm's optimal speed of R&D and the optimal expected date of switch-over to the substitute inputs in an infinite-horizon model under uncertainty about the timing of success of the R&D program. The effects of different government subsidies or taxes, changes in input prices and other parameters on the optimal speed of R&D and on the expected date of switchover to the substitute are also investigated. It is also shown that strategic behavior by the seller of the technology may delay the development of the substitute by the licensee firm.     

The influence of reputation on supplier selection: An empirical study of the European automotive industry

Using an original database, integrated with information by the web, we propose an ex-post analysis on the main factors influencing the selection process of tier 1 suppliers in the automotive industry. There is plenty of literature on how buyers should select their suppliers, but the literature on how they really do so is scarce. We contribute analysing an original database collecting purchasing contracts information within the automotive components market in Europe. We investigate, through different econometric approaches the influence of traditional supplier selection criteria in combination with different reputation factors. Our findings suggest that reputation plays a crucial role more than classical criteria; in particular, suppliers, which serve a diversified customer portfolio or with strong exposure to premium brand customers have better chances to gain additional orders and broaden their customer base even more. The latter means that OEMs have to increase their reputation in order to be more attractive for suppliers.     

Differences Between Clients’ and Vendors’ Perceptions of IT Outsourcing Risks: Project Partnering as the Mitigation Approach

Information technology (IT) outsourcing has been a business practice for more than two decades. Researchers have suggested successful risk management as a key factor in successful IT outsourcing projects implementation. The documented investigations, however, have mainly addressed risk management only from a single perspective of either clients or IT vendors. Considering only one perspective allows for an omission of possible risks considered critical by the other party, as suggested by agency theory. This study explored the potential perception inconsistency regarding the risks between the client and the vendor for IT outsourcing projects by using a quasi‐Delphi approach. The analysis results indicated some inconsistencies in the risks perceived by the two parties: (1) the clients regarded (a) lack of vendor commitment to the project and (b) poor vendor selection criteria and process as top critical risks but the vendors didn't; and (2) on the other hand, the vendors perceived (a) unclear requirements and (b) lack of experience and expertise with project activities as significant risks but the clients didn't. Insights into how the client and the vendor perceive risks may help both parties determine how to partner and manage project risks collaboratively to succeed in outsourcing.     

A Comprehensive Framework for Sustainable Project Portfolio Selection Based on Structural Equation Modeling

Project selection problems are inherently complex problems with multiple and often conflicting objectives. The complexity of project selection problems is due to the high number of projects from which a subset (portfolio) has to be chosen. Various analytical methods, ranging from the simple weighted sum to complex mathematical programming have been proposed to solving these problems. We propose an integrated approach for strategic and sustainable project portfolio selection, which is composed of two distinct but interrelated modules. In the first module, we use the strategic planning and sustainability concepts to select a set of promising projects. In the second module, we use a project portfolio selection procedure to choose among the promising projects identified in the first module. A structural equation model is used to analyze and explain the relationships among different factors in the proposed framework. More specifically, we investigate the effects of: (1) strategic level performance on sustainability, post‐implementation, and overall performance; (2) implementation performance on post‐implementation and overall performance; (3) portfolio selection performance on implementation and overall performance; and (4) post‐implementation performance on overall performance. A case study in investment banking is presented to demonstrate the applicability of the proposed model and exhibit the efficacy of the procedures and algorithms.     

Technology policy in Japan: A short review

This paper examines technology policy in Japan. Following a brief introduction, we review trends in Japanese technology policy: in the 1950's and through to the mid-1960's, the main policy concern was to facilitate the importation of technology. However, in the mid-1960's, the emphasis had shifted to promote domestic R & D, and various policy measures like tax breaks, subsidies and research contracts were employed to encourage R & D in private firms. In the 1970's, public policy became more selective, and R & D on pollution control, energy, space and ocean resources was encouraged. Currently, the policy discussion is centered around the problem of how to enhance Japan's technology base in basic technologies in order to promote a shift to high-technology production. The third section examines the various policy measures in detail; preferential tax treatment, subsidies, research contracts, low interest loans, public research institutions, public corporations, and research associations. It is argued that Japanese technology policy worked alongside market forces rather than replacing them with the political process. This approach was successful in the sense that it contributed to the promotion of technological progress and a high rate of economic growth. However, as the promotion of basic research becomes more important, a new approach must be devised. The brief concluding comments discuss current and future problems to be addressed by technology policy in Japan.     

Portfolio selection methodology for a nuclear project

It is difficult to evaluate complex, publicly sensitive nuclear project proposals. Scientists, subject matter experts, politicians, and citizens often differ on scope, budget, time, and quality priorities. There are numerous qualitative factors and quantitative variables. Experts could widely disagree on criteria or neglect to discriminate between seemingly identical alternatives. An ineffective portfolio selection method could lead to safety problems, budget overruns, or outright project failures. This case study develops and examines a mixed‐method, integrated qualitative and quantitative portfolio selection model, applied to a “tritium extraction facility” project concept.     

Application and project portfolio valuation using enterprise architecture and business requirements modelling

This article describes an architecture-based approach to IT valuation. This approach offers organisations an instrument to valuate their application and project portfolios and to make well-balanced decisions about IT investments. The value of a software application is assessed in terms of its contribution to a selection of business goals. Based on such assessments, the value of different applications can be compared, and requirements for innovation, development, maintenance and phasing out can be identified. IT projects are proposed to realise the requirements. The value of each project is assessed in terms of the value it adds to one or more applications. This value can be obtained by relating the ‘as-is’ application portfolio to the ‘to-be’ portfolio that is being proposed by the project portfolio. In this way, projects can be ranked according to their added value, given a certain selection of business goals. The approach uses ArchiMate to model the relationship between software applications, business processes, services and products. In addition, two language extensions are used to model the relationship of these elements to business goals and requirements and to projects and project portfolios. The approach is illustrated using the portfolio method of Bedell and has been implemented in BiZZdesign Architect.     

DELEGATED PORTFOLIO MANAGEMENT: A SURVEY OF THE THEORETICAL LITERATURE

Abstract.  This paper provides a selective review of the theoretical literature on delegated portfolio management as a principal–agent relationship. The main focus of the paper is to review the analytical issues raised by the peculiar nature of the delegated portfolio management relationship within the broader class of principal–agent models. In particular, the paper discusses the performance of linear versus nonlinear compensation contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role of reputational concerns in a multiperiod framework, and the incentives to noise trading. In addition, the paper deals with some general equilibrium dimensions and asset pricing implications of delegated portfolio management. The paper also suggests some directions for future research.     

Knowledge transfer across permeable boundaries: An empirical study of clients’ decisions to involve management consultants

We investigate the relationship between the knowledge requirements of projects and clients’ decisions whether to procure services from external management consultants for the execution of these projects. Using data from interviews with client decision-makers regarding the execution of 86 projects, we find that knowledge requirements are strongly associated with the decision whether or not to involve external consultants. The results highlight the closeness of the relationships between clients and consultants, supporting Kitay and Wright's [Kitay, J., & Wright, C. (2004). Take the money and run? Organisational boundaries and consultants’ roles, The Service Industries Journal, 24(3) 1–18] view of the permeability of the boundaries between many client organizations and their consultants. The findings also confirm our expectation that clients use the services of external management consultants in order to procure functional or industry-specific knowledge which consultants can pool and apply efficiently across many projects.     

Evaluating innovation policies: The German experience

Until recently, evaluations of technology policy were rare in the Federal Republic of Germany. Activities of this type on a larger scale were not started until the early eighties. Most of the evaluations performed concerned government incentives for small and medium-sized enterprises (SME). The main areas of research and development (R & D) and innovation promotion in small and medium-sized firms are the improvement of the capability and propensity to do in-house R & D, intensified cooperation in R & D between industrial firms and research establishments, the provision of more venture capital, and improved technology transfer. The underlying assumption is that these firms have bottlenecks, in particular in financing, in the personnel sector, and in obtaining information. A number of the existing support programs has meanwhile been investigated; the results of these investigations are covered in this paper. Initially, the underlying concept of impact analysis is outlined. Next, examples are presented of evaluations of general R & D funding measures, of grants for specific projects, of the debate about the most suitable instruments of promoting R & D in SME, and of technology transfer. Finally, some implications arising from the results of these analyses for technology policy in the Federal Republic of Germany are discussed.     

Growing and mature stage technology selection patterns of small sized firms in selected Asian countries — Korea,Hong Kong,and Japan

By comparing successful technology innovation cases with unsuccessful ones in Hong Kong and Korea, as deueloping countries, comparing with Japan, as an advanced country in the Asian region, this study suggests a basic policy of the selection of R&D projects for small firms in developing countries. These countries have great differences. For instance, with respect to governmental support, small firms in Hong Kong do not haue any opportunity of government support while small firms in Korea enjoy it so much. In Japan, small firms have enjoyed it previously but now they face the similar situation of small firms in Hong Kong. Based on the difference of these countries, the existing hypotheses related to technology innovation are elicited and modified suitably for small sized firms in developing country, since these hypotheses have been derived on the basis of large firms in advanced countries by other authors. 77ns study shows the different selection pattern of R&D projects with respect to growing and mature stage technologies, based on the field study.     

On the generalized principal-agent problem: Decomposition and existence results

This paper addresses the class of generalized agency problems: situations in which adverse selection and moral hazard are jointly present. We present a decomposition of the principal's optimization problem under the first-order approach that sheds light on the interactions between the two types of private information, and also significantly improves tractability. We use the decomposition to (1) provide examples of closed form solutions of the optimal contract, and (2) analyze the existence of optimal contracts. We also show that the first-order approach is valid in generalized agency problems if the production technology satisfies the linear distribution function condition (LDFC) in actions and types. For more general production technologies the Mirrlees-Rogerson sufficient conditions need to be extended to include restrictions on the form of the optimal contract. Received: 11 August 1997 / 26 September 1999     

Procurement and innovation risk management: How a public client managed to realize a radical green innovation in a civil engineering project

Public clients’ decisions on the procurement and contracting of civil engineering projects have far-reaching effects on the development and implementation of innovations. Two decades ago, a trend towards the use of integrated contracts started to improve constructability and stimulate innovations. However, for radical innovations, the unilateral allocation of innovation risks to the main contractor is undesirable since most of the associated innovation risks are difficult to assess and manage due to the inherent uncertainties. An in-depth case study was used to investigate the development and application of an alternative public-client-led approach to realizing a radical innovation in a civil engineering project. This study shows that: (1) government championship, through a proactive participation of the public client in the initiation, development and implementation of the project and the willingness to bear innovation risks; (2) the application of innovation risk management strategies and the availability of a fall back option; (3) the establishing of favourable organizational and relational conditions, were determinative factors for the successful development and implementation of the intended radical innovation. Furthermore, seven propositions have been derived that together provide instruments through which public clients can actively promote the development and implementation of radical innovations in civil engineering projects.Subject classification codesManaging Project Risk; Managing Project Innovation; Contract Procurement and Tendering     

Identifying and evaluating strategic partners for collaborative R&D: Index-based approach using patents and publications

Identifying and selecting appropriate strategic partners have been the subject of many previous studies: but most have dealt with partner selection that has relied heavily on experts' judgements: the value of a literature-based quantitative approach as a source of technology intelligence has seldom been addressed. This paper therefore aims to develop a systematic framework to guide strategic partner selection, taking a literature-based approach. Reviewing the factors that can lead to successful R&D partnerships to develop partner selection criteria, we designed 14 indexes – grouped into four major categories – to reflect desirable partner characteristics, and used the literature data to suggest a framework for prioritising potential partners. As data sources, the United States Patent and Trademark Office (USPTO) and the ISI Web of Science databases are adopted for patent analysis and publication analysis, respectively. This research applied the framework to identify strategic R&D partners for Korean firms and found that the use of literature data enabled a wide ranging search for potential partners and the quick analysis of their characteristics, with results that provided objective evidence for selection decisions. It also investigated the relative importance of literature databases and that of the four decision criteria by industry, and examined the relationships between the indexes to improve the application of the framework. The suggested framework is expected to be valuable as a complementary tool for decision-making about R&D collaboration.     

Environment and technology strategy of firms in government R&D programmes in Korea

This paper examines firms' strategic behaviour under different types of environment to analyze firms' technology strategy in government R&D programmes. It identifies four dimensions of technology strategy and four types of environment associated with technological change and market competition. A set of hypotheses that represent how firms' technology strategy varies according to the different types of environment is developed. For the empirical test, 643 national R&D projects are selected and surveyed by the structured questionnaire. Data are collected from 219 respondents. The empirical results show that firms make their technology strategy differently according to changes in the environment. Finally, this study discusses its implication and the area of future research.     

Immunizing Foreign Exchange Contracts Against Swap Rate and Volatility Risks

Swap rate risk, also called the problem of' "maturity gaps," originates from foreign currency holdings whenever the involved contracts have differing maturities. Such differing maturities give rise to a sensitivity of the portfolio values with respect to the "swap rate," or differential between the relative interest rates in two countries. Volatility risk, which typically affects only currency contracts having asymmetric payoffs (such as currency options), gives rise to a sensitivity of portfolio values with respect to changes in the exchange rate volatility. In this article we show how currency portfolios may be immunized , or made insensitive, to both swap rate risk and volatility risk, in the sense of Macaulay's (1938) classical treatment of interest rate risk. The European currency option contract is the primary subject of our discussion, since we show that both ordinary forward contracts and other complicated currency contracts are equivalent to suitable combinations of European currency options.     

Sustainabilty integration in product portfolio for sustainable development: Findings from the industry

Many companies decide which services, products, and technologies to include in their product portfolio using evaluation criteria, which often consider cost, quality, risk, revenue, time, and market position. Incorporating sustainability in the portfolio evaluation criteria could ensure the development of sustainable solutions from the early stages of the product development process, where there is more room for innovation. The aim of this paper is to understand how sustainability can be integrated in the company portfolio development. Semi-structured interviews were performed with experts in the field and representatives from multinational manufacturing companies with operations in Sweden. Main findings from this study include a proposed definition of a sustainability product portfolio concept and suggested portfolio evaluation criteria from an industry perspective. Future research will develop a method to guide manufacturing companies in sustainability integration and implementation in product portfolios.