DANAKA CORPORATION HEALTHCARE SOLUTIONS PORTFOLIO MANAGEMENT Case Study Solution
Problem Diagnosis
There are a number of barriers, which are faced by the multinational corporations, and one of the most significant barriers, which are faced by them, is their inability for financing the growth initiatives of their business in a number of key business areas. This is probably due to the lack of people and dollars both and thus the businesses are restrained from winning. This challenge is underpinned by the conflict, which is created by the financing of the current legacy businesses of the company, which are the cash generators and the new initiatives, which might generate zero or even negative financial returns in the short term.
The same challenge is faced by Danaka Corporation and Gloria Manning, the general manager of the company. The management of the company has been looking forward to fund eight new initiative projects for the year 2012, which were critical to the future growth plans of the company. Moreover, there were other 32 current projects, which were under progress by the company. Therefore, the challenge was to finance the new eight projects by reducing the dollar research and development expenditure from those 32 projects. However, the company did not have a formal portfolio management process to deal with this issue.
All the projects of the company have been divided into many subcategories, which include lagging projects; fight the fade projects, share growth projects and the accelerated growth projects, which were also more like the share growth projects. The challenge for Danaka Corporation now is to free up $ 300 million in funds from the existing ongoing projects of the company so that all the eight new projects of the company are funded internally. Apart from this, the only way to achieve the five-year growth plans of the company is to fund these projects and achieve minimum-targeted revenue of $ 5 billion in 2012. Optimal techniques and portfolio screening model needs to be developed to achieve this target and make a decision on a project-by-project basis.
Case Analysis
The optimal funding allocation decision is the main challenge, which is currently being faced by Danaka Corporation. This optimization process has been performed by creating a screening model in which the products sold under each of the businesses have been evaluated and then based on a number of factors the optimization has been performed in order to free up $ 300 million of funds to fund the new eight projects of the company. However, not all the new eight projects would be generating any revenues or financial returns until the end of the year 2012. Therefore, a financial constraint has been set up by the management of Danaka where the revenues of all the existing projects are optimization need to be equal to or greater than $ 5 billion.
The weighting scorecard has been provided in the excel spreadsheet and we have re-assessed this weighting scorecard based on the demand and the growth prospects of those particular products within the market. After the analysis of the scorecard, we have performed the optimization of the project portfolio to free up $ 300 million for funding the new projects. In achieving the five-year growth plans, the following two factors have been taken into account to perform the portfolio optimization:
- The minimum revenue from the existing projects should be equal to or greater than $ 5b.
- At least $ 300 million needs to be saved from R&D spent on the existing projects, to fund the new planned projects.
Once the objective of project portfolio optimization has been achieved, then we have performed the evaluation of the opportunity map and then final recommendations have been made to Danaka’s management and Gloria Manning.
Initiative Portfolio Mapping & Weights of Each Criteria
Initially the weights have been assigned by the team of Gloria Manning as shown in the excel spreadsheet. First, if we look at the Fight the Fade project category and all the products of category, then we have reduced the weight age to two for identifying the specific customer targets. This is because these projects are not growing the company and they contribute only in maintaining the current level of the business in the market. These projects have limited growth and therefore, identifying new specific customer targets would not be relevant for this project category.
Secondly, the scores for the Drapes within this project category have also been changed because the antiseptic wipes and the hand washes are one of the most popular and effective products among all the products in this project category. Moreover, the total weighted score for Drapes is lowest among all the other projects therefore, this has been chosen as one of the project, which should not be funded, and its R& D expenditure needs to be saved. In a same manner, for the projects based upon the share growth criteria, securing the market share gain and the identifying the specific customer targets decision criteria have been increased to a weight of four.
This is because the Share Growth projects have a low level of uncertainty with a solid growth potential. However, the scores for the antiseptic spray product have been reduced within this project category because these products are mainly popular in the niche markets and therefore, they might not be generating significant revenues. Therefore, giving them a higher rating as compared to the other projects in this sub-category would not be relevant and fair. Finally, for the third sub category of the projects, which is the Accelerated Growth Project, the ratings of three key criteria have been increased to four because of their relative importance. These three key criteria are the ability to bring to the market, size of the opportunity and improving the healthcare globally criteria.
DANAKA CORPORATION HEALTHCARE SOLUTIONS PORTFOLIO MANAGEMENT Harvard Case Solution & Analysis
Most of the projects under this sub category are venture launches of the company, which emphasize heavily on revenue and share growth in the market. The scores for three key projects have been changed and perhaps decreased within this subcategory because of their relative importance of each decision criteria. These three projects are collaborative care, image acquisition and image collaboration and reporting. The total weighted score is lowest for these three now and thus they would also not be funded and the R&D expenditure would be saved from these projects. The changes in the weights and the scores of the decision criteria of the specific projects have also been made by also taking account of the Initiative portfolio map..............................
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