Building an Organisational Portfolio
We present a method to create and evaluate organisational portfolios.
Organisational portfolio management can be used to underpin long term success
We have found that it is generally useful to think about the balance of activities that can deliver the greatest overall success & value for an organisation. We have therefore developed an Organisational Portfolio Model (OPM) that helps with the evaluation of organisations and can be used for strategic planning.
Our organisational portfolio model helps focus on achieving balance and resilience
The model was designed to help identify the optimum balance of business activities that deliver good business performance and long term resilience. We have found it to be useful as an aid to the development of organisational strategy. This might bear similarities to the excellent Growth Matrix approach developed by BCG but our approach is focused on a portfolio that helps an organisation achieve balance and long-term resilience rather than being focused on growth.
The four categories of the Organisational Portfolio Model
All business activities can be placed into one of four categories: Maintain, Grow, Diversify and Disrupt.
The idea is not to ‘put things in a box’, but rather to cluster types of activity using business principles and then consider the best overall balance of those activities.
When contemplating the appropriate position for activities in the matrix, it is helpful to consider the degree of confidence with respect to successful implementation and the time it will take to deliver. The levels of confidence associated with success for projects in each category are given in each of the four sections of the matrix.
Maintain. Reflects products, services or activities that an organisation has at its core and that generate a healthy return (either profit or impact).
The key characteristics of these activities in ‘Maintain’ are: (a) the organisation has an established track-record in delivering those products and services to the market; (b) there is a high degree of confidence that these activities are likely to continue in a predictable way for the next few years and; (c) there is a good understanding of the competitive advantage, market dynamics and the user / customer experience underpinning (a) and (b).
Grow. This category contains projects and activities designed to grow market share but with less certainty for the established markets and customers underpinning ‘Maintain’.
Projects in this category, should still command a high degree of confidence and be underpinned by excellent market understanding, compelling business case and a realistic plan for execution. There should be a good level of organisational confidence with respect to delivery that is underpinned by a realistic approach to timescales and risk. There will be investment required (possibly product refinement, marketing, capex, new staff capacity etc.). There will typically be an expectation of delivering income within 1 year and positive returns at least as good as those in ‘Maintain’ within 1-2 years. The timescales will of course depend on the specific sector. Typically, projects in this category are focused on attempts to grow market share.
Diversify. Reflects a greater focus on innovation and an attempt to penetrate new markets. These projects inevitably are characterised by a much higher degree of uncertainty than ‘Maintain‘ or ‘Grow’.
This category might require the development of a new product line / service offer - often, but not always, to new customers / sectors. Sometimes it is not clear cut where this type of activity sits until a more detailed analysis of market response and business outcomes are modelled and understood.
Projects in this category need careful business and project planning as they represent much higher risk for organisations and are likely to be diverting capital and resources from ‘Maintain’ and ‘Grow’. Return timescales will depend on sectors but a realistic timeline for return on capital is important. Tensioning ‘Diversify’ vs ‘Grow’ is often challenging.
Disrupt. Reflects the highest level of risk and uncertainty. These are activities that are almost always going to fail: but can be transformative if successful.
There are a few ways to incorporate this type of activity into your organisation: (a) buy or invest in start-ups with disruptive potential; (b) work with universities on collaborative projects; (c) use challenges and other mechanisms to encourage employees to spend some of their time on blue-sky projects or; (d) create a disruptor team tasked with piloting entirely new approaches.
Generally activities in ‘Disrupt’ are likely to be no more than 1% of the total. This is simply pragmatism, most organisations run so lean that they can’t justify the resources to support any more than that.
How to use the Organisational Portfolio Model
There are a variety of ways to use this model - here is an example which can aid strategic discussions:
Step 1 - Place all your projects / activities into one of the four categories - to give an initial picture of your organisational portfolio.
Step 2 - As a percentage place your income streams into each of the four categories.
Step 3 - As a percentage place your costs into each of the four categories.
Step 4 - Based on what you know now, generate three new idealised portfolios: (a) one you would prefer to see now; (b) one you would like to see in 2-3 years and; (c) one you would like to see in 5+ years. Simply imagine the composition you would need to achieve your ideal organisational goal - it might be similar to now, or radically different.
Step 5 - Discuss whether: (a) the overall balance of activities is appropriate for the present; (b) the extent to which organisational decision-making (and resource allocation) is aligned to portfolio needs and; (c) what would need to change to deliver your idealised portfolios in the future.
The great thing about the resulting discussions are that they draw out the different perspectives of the team.
Although we have outlined the way one might recognise characteristics of projects that sit in the four categories, that’s not really the point. This model helps focus the discussion to the composition of the overall organisational portfolio.
The right balance?
That depends on organisational aspirations and expectations of returns, availability of capital, time for product development and time required to re-shape the portfolio from where the organisation is today.
Benefits of using the Organisational Portfolio Method
There are many benefits of OPM including for example: (a) helps management teams discuss and debate the optimum balance of short, medium and long term priorities; (b) encourages teams to engage with and see the value of the whole portfolio; (c) minimises the risk of optimism bias; (d) minimises the risk of short-termism.
We also think that utilisation of the OPM by management makes for better communication with the Board, particularly when discussing long term plans, capital allocation and other high level decision-making.
If you would like to us to help you use this method or would like some related support or facilitation please do get in touch at general@scstrategyconsultants.com