Abstract
Firms typically manage project portfolios with specific characteristics, including lengthy and high-risk projects with many similarities in human and technological resources and whose sequence and movement through the pipeline create longitudinal interdependencies. Interdependencies increase the complexity of project portfolios and create constraints in decision-making. This paper focuses on resource interdependencies and aims deepen our understanding of the extent to which resource interdependencies affect project termination. We study a sample of 417 new biotechnology-based drug discovery and development projects initiated by 25 biopharmaceutical SMEs. To test the hypotheses, we employ survival analysis and model terminations as a conditional probability and a corresponding hazard function. Our results show that for drug development projects, only certain types of interdependencies have a significant effect.
1. Introduction
R&D projects involve a high degree of uncertainty due in part to the unpredictability of immediate returns. The termination rate for such projects has been estimated to range from 40 to 75% (Shih, Zhang, & Aronov, 2018; Stevens and Burley, 2003). The significant financial and non-financial losses that can be associated with R&D projects warrant a study on the reasons for project termination.
Most analyses of project termination focus on individual projects in isolation (Biedenbach and Müller, 2012; Unger, Kock, Gemünden, and Jonas, 2012). They have shown that the determining factors for R&D project termination relate to parameters such as high-risk investments (Conti, 2014; Pammolli, Magazzini, and Riccaboni, 2011), lack of exploitable knowledge created (Bonabeau, Bodick, & Armstrong, 2008), the firm’s inability to leverage its exploration and exploitation experience for R&D projects (Hoang and Rothaermel, 2010), the collaboration structure (e.g., Mishra, Chandrasekaran, and MacCormack, 2015; Pisano, 1997), the firm’s position in an interfirm knowledge network (Dong and Yang, 2016), and more generally, the project’s characteristics, with the causes of termination varying by project type (Pinto and Mantel, 1990).
6.1. Managerial implications
The biopharmaceutical industry may serve as a model for firms in other industries that share the same contingencies in a highly dynamic and competitive environment. As Khanna et al. (2018) points out, terminations can be strategic for shaping innovative portfolios: “Interdependencies in research portfolios may influence not only the effectiveness of search, but also firms’ selection strategies” (2018, p. 2459). The results of the present study offer new insights into project portfolio management practices. Managers are recommended to adopt a dynamic perspective and to combine project portfolio management with project lineage management. This means that decisions about the project portfolio structure need to consider more than just project interdependencies at a given moment. Because projects evolve over time, they require the development of evolving knowledge management systems, such as using learnings from past projects (Kock and Gemünden, 2019) in order to optimize investments in future projects. At the same time, managers should build the firm’s exploration capacity so it can leverage new technologies for subsequent projects.
