Excerpts from Four Frameworks for Portfolio Management: Leading During a Time of Disruption and Change Copyright © 2020 by IT Revolution
Successful execution of business transformation is the most significant leadership challenge senior executives can face. They cannot do so without having a holistic view of their portfolio and ability develop an informed strategy around products.
What are few of the questions which can help in starting conversation around business transformation?
How long can the company’s current business model deliver its desired business growth goals and financial results?
How vulnerable is the company’s business model to being digitally disrupted?
How well can the company leverage digital technology for increased competitive advantage and organizational agility?
How open is the company’s culture to changing the way it does business?
Why there is a need of portfolio management frameworks for for senior executives?
Faced with finite resources, capacity, and budget, executives must make difficult prioritization and investment decisions, examining a portfolio and assessing many attributes of each offering. Fortunately, there are frameworks executives can use to guide their decisions. By using more than one framework, executives can improve their decision making and improve confidence in their strategy and plans.
What four frameworks are mentioned in this framework?
Historical Performance Analysis: evaluating historical revenue growth & profitability
Applying Complexity Science to Decision Making: using scientific inquiry to tailor the strategy based on availability of data
Forward-Looking and Predictive Metrics: considering leading indicators to inform future results
Zone Management for Business-Value Creation: segmenting and categorizing to prioritize investments and tailor approach
Historical performance analysis: It allows decision makers to quickly understand current and future product-revenue contributions.
Product A is the cash cow and is important in sustaining the business, but it is clear that the company must find other sources of revenue and profits as growth has slowed.
Product B is a mature and shifting business. While the product still contributes meaningfully
to revenue, profitability is declining below company targets.
Product C is a smaller, but growing, business with good profitability, so it is a candidate for increased investment.
Product D is a new product offering. The expectation for this product is that revenue will continue to grow while profitability improves.
Cynefin Mapping (Point in time analysis): When evaluating products at a point in time, the application of complexity science to decision making can help determine the amount of data necessary to make better decisions in an uncertain world.
Product A is a highly matured capability that is in the obvious domain with some complicated processes. Data is available and expertise exists.
Product B is complicated. Decisions are not as obvious as Product A. Most assumptions are verifiable and results are predictable.
Products C and D sit in the complex domain and are exploratory and experimental in nature. The technology is breaking new ground for the business and continues to challenge the team’s understanding and still has unexplored areas of risk. Ambiguity is present and the possibility of failure exists.
The Flow Framework: Forward-looking and predictive metrics provide a quick way for decision makers to determine which products are worth future investment
Product A is a known product that is clearly understood. However, it is not very attractive to the market due to its maturity.
Product B is more attractive, but the ability to execute on the product is low, because Flow Time is long, technical debt is high, and process maturity is relatively low. An investment here is unlikely to drive significant returns.
Product C is attractive to the market, and the ability to execute on the product is high. Incremental investment will likely show a positive return.
Product D is very attractive to the market, and the ability to execute on the product
is good. Since this is a relatively immature product, investment and returns should be
Four Zone Management Framework: The four-zone Management framework helps assess the performance of a portfolio of products.
Products A and B are mature and are tracked by corporate investors in public or private companies. Rewards are based on current performance that drives sustainable value creation. These products don’t reflect the increasing impact of digital technologies.
Product C belongs in the Transformation Zone. It has scaled to more than 10% of the company revenues. It is also growing quickly and highly profitable. The focus should be on maximizing revenue growth and winning in the market.
Product D is in the Incubation Zone. This product is focused on business transformation. The product is early in its life cycle, and long-term success isn’t guaranteed. Time to value and customer adoption are the most important metrics.
Ref: Four Frameworks for Portfolio Management: Leading During a Time of Disruption and Change Copyright © 2020 by IT Revolution