Enterprise Portfolio Management Series: Innovation within and existing Enterprise

Enjoyed Alexander Osterwalder’ s article on Portfolio Management today. He covers some of the same ground I’ve been presenting within Microsoft, DMR and IBM over the years. The enterprise has many portfolios. These are categorized in hierarchies, functional domains, temporal horizons, as well as the innovate/exploit Portfolios.

The issue I found within many organizations was with the cross-over from Innovate to Exploit. While at IBM it took a while to build out the practices to somewhat effectively do such. At IBM we had embraced “Alchemy of Growth” for portfolios but the transition became the stumbling block. At other companies I’ve consulted to, it’s the same. Creating that system that enables escape velocity from the innovation center and then captured into a new orbit around the performance center of gravity ( i.e., exploitation of the innovation into the core business ) is no small challenge.

This issue will be addressed in the Enterprise Portfolio Management Levels 3/4/5 articles in the series.

Slide Notes

Today one hears a lot about innovation or being innovative in an enterprise. However, and enterprise by its nature seeks to maintain a status quo. For an Enterprise to survive today management needs to create an equilibrium between innovation and performance.

The two major centers of gravity in an enterprise are its innovation and performance engines – “Beyond the Idea”

Concepts, Initiatives, and Activities will stay in the gravitational sphere that supports these unless escape velocity is reached

Once escape velocity is reached unless influenced by another gravitational center these items will spin off into the void

Effective portfolio actions assist in the change in mass in each of the gravity centers of an enterprise.

Beyond the Idea: How to Execute Innovation in Any Organization, Vijay Govindarajan & Chris Trimble, 2013

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Is your APM strategy a yard sale or a Beauty Pageant?

This and the next few weeks Carl Engel (Elyon Strategies CEO) and I are collaborating on a white paper about Enterprise Portfolio Management. The insight that we should do this came about a month or so ago at a Industry Vendor’s Conference where we saw some serious misalignment in presentations touting Agile and APM as the key to success. Our objective behind such is to give executives insight and tips how-to implement a beneficial portfolio practice beyond just APM.    My strategy creating this paper is to provide the “Cliff’s Notes**” on the Enterprise Portfolio Management practice I’ve been maturing over the decades for various consulting, technology firms and their clients.

During our brainstorming sessions one insight has continually come to the forefront.  The state of the art in APM is drastically behind the state of the industry in financial portfolio management.  Not only that but the practice in APM could actually be damaging to an enterprise.  Here is one insight from our brainstorming session:

Application Portfolio Management (APM)

APM as practiced by many IT organizations and consulting firms typically focuses on one of two strategies: Rationalization of Current or Curation of Potential.  In the first strategy the organization is seeking to ride itself of assets in its portfolio.  In the second strategy picking individual winners or highest winners is the goal.  Both of these objectives are well meaning however, if not accomplished in alignment to an enterprise’s business can prove devastating.

Portfolio Management was originally introduced as a strategy to balance risk and reward in the financial investment industry by Nobel Prize-winning economist Harry Markowitz.  As the concept of portfolio management migrated to IT the second factor, risk, seemed to have been dropped from consideration.  If a root cause analysis had been accomplished you’d likely find many of the serious issues within IT can be traced back to not considering the enterprise risk of the equation.

With regard to the first strategy Rationalization.  Lets consider why one is “rationalizing” the portfolio.  In several engagements I was brought in, was due to acquisition of multiple assets or copies of assets doing the same thing.  The root questions is why?  The other situation was the asset did not perform or no longer performs at the desired level.  The end result of such is these assets are like the tail end of a yard sale. The only thing left to do with them is box them up for charity (unlikely) or putting that ugly lamp into the trash to be hauled away and forget about them.  But why did this occur?  If it was an asset to the enterprise shouldn’t it have been managed as such?

In regards to the second strategy Curation of Potential, there are many books, consultants and firms touting how-to develop effective business cases for initiatives.   I’ve co-developed several of these for corporations such as IBM, Microsoft, and other consulting firms.  Unfortunately despite cautions to the contrary, these are often watered down to eliminate the interdependence risk portion of the equation.  This creates a popularity contest for funds.  This maybe due to self-interest by the initiative promoter, a lack of insight as to the interdependence of the initiative within the enterprise ecosystem or that no one wishes to discuss the potential downside: “You’re just being negative…”  In any of those cases the risk to an enterprise is an iceberg in the ocean the enterprise is sailing through.

The forthcoming white paper will provide some tips on effective Enterprise Portfolio Management, while the training course to follow will delve deeper into how-to establish and mature a portfolio management practice.  This will also help enterprise determine at what level they are and what level of practice is optimum for them.  That is not every enterprise needs to or should be at a Level 5  of capability/maturity.

 

 

 

**Shorter versions of Dummies books for those born later than Boomers

Internal Transformation

Past week has been working on internal transformation projects for my firm.  A classic case of eat your own dog food.  The interesting situation is everyone is excited to participate and help in the transformation.  –makes the task 1) easier 2) much more enjoyable — and confirms that I joined a awesome company, with awesome people.  Revising Business Model and putting into place a strategic execution system to ensure alignment with Biz Model, Designing, building, and implementing a client acquisition system to improve getting and keeping desirable clients.

This morning’s insight

A part of a good strategy is knowing what not to do; besides what to do.  I see too many companies run off the rails by going after the wrong type of business, markets and clients. Or trying to be everything to everyone, thus ensuring you’re nothing to everybody.

IT Portfolio Management –State of Industry Practice Report

 

This must be the year of the Portfolio tool suites. Interesting to see all the hype around IT Portfolio Management currently. When I dig into the materials and tools the past several months: Nothing new that you couldn’t do with a spreadsheet and have. The unfortunate thing is that the current state of industry practice is still around stack-ranking around perceived ROI and using budget target as a cutoff point for approved projects.

Yes, sure there are now project and application profile databases that allow you to capture descriptive information about the project or application, and categorize these. However, when you dig under the covers of these tools, it’s still plain old ROI stack ranking.

Maybe it that that’s all that current organizations can or wants to handle as far as investment decision making. Given the other hundreds of things that are on management’s plate. Considering that many technology decision-makers handover their own personal financial investment decisions to brokers and financial advisors, its small wonder that they would pick the simplest and quickest decision criteria.

Often when I discuss such topics I hear dismissive statements like “Academic”, “Analysis Paralysis”, or “Over-analysis”. Yet in the same corporation its field staff recommend and spent hours with clients analyzing various factors to make sound recommendations [some even use the methodologies and tools I’ve developed for this purpose].

A small, not uncommon scenario in industry today

In a previous project, I observed that at every opportunity decision-makers voted to remove objective evaluation factors or transform these factors into subjective ratings (wet finger in the air directional estimates) that the initiative sponsor would give and no one at the table would challenge. Groupthink or old-boys behind the scene dealing? In either event the portfolio management process eventually became a story-telling session to report up the chain on how great or critical the projects they were proposing are.

The process and approach were eventually closed out as it didn’t yield the results that either management or executive management wanted. –Small wonder given the only thing left of actual process was the title—And the management team went back to the way they always did it: project popularity and ROI hurdles based upon investment SWAGs that everyone knew were drastically off by several orders of magnitude. To be fair management was only following the lead of the executive they reported to, who was purported to focused on “just doing something”.

I point out the above as example of state of industry and why such practices persist.

Results from the field

However, that don’t mean there aren’t others that have matured in their decision processes and are achieving better than average results. Several statements have been made regarding the difference between number one and two in the industry and all the others. Reports suggest performance of number one and two are only about two to five percent better, they results from these year after year result in margins and market share of thirty percent or better while number three and lower are struggling to maintain five or ten percent.

A few things to clear up regarding IT Portfolio Management practices.

  • Imho, most are just inventory process and systems using discounted cashflow on guesstimates for valuation. Very few take a critical eye towards the value produced to the enterprise or the risks associated with such investments. Does this sound very financial advisor-ish? It should as that’s the domain where this all came from. The issue arises in that only part of the portfolio management equation has been used in IT Portfolios and other Enterprise portfolios. The entire risk side of the equation and other potential benefits has been dropped.
  • Portfolio Management is about balancing Risk and Reward
  • Portfolio Management results have a long tail; that is the improvement year after year compounds. It’s not market timing Big Bang / Big Bust or take a chance lotto

Several decades ago Parker & Benson proposed an investment decision framework in a modest book called Information Economics. In it what now is called a balanced scorecard approach was used to evaluate multiple factors for technology investments. I believe it was a watershed moment in that a framework for rational investment for the enterprise’s benefit was introduced. The framework embraced the concepts of a balanced portfolio the Markowitz (the economist who won the Noble Prize in Economic for developing Portfolio Management).

At present, it’s difficult to determine IT portfolio performance, as there is not an industry analysis firm gathering data on such or a benchmark yet (stay tuned). The only statistics I’ve found in this arena so far has been around IT spend or IT spend as percentage of enterprise revenue. However, the quick survey I’ve conducted over the years points to those that manage IT Investment beyond just ROI have better enterprise performance vs. IT performance year after year.

During this current year I hope to complete both my Modern Portfolio Management White Paper and Tool Suite with the support of my employer. The objective I have for both is a system that enables one to start from the basics then as time, resources, and cost/benefit determine raise themselves to the next maturity level of practice.

For those interested in this approach reach out to me either through my employer or directly via LinkedIn

Saving your way to Bankruptcy

How often have you hear “Honey I bought it on sale and saved us a ton of money”? Really? Did at the end of the month you could see your bank balance increase? Often, we hear similar words inside an enterprise. We’ll saved 1000 man-hours with this new project.   Can you really save man-hours? I’ve not seen any place where time could be saved, much less get paid interest on it.

So, if these questions seem logical, why do we continually hear internally and from vendors about all the time savings? Possibly because emotionally we all like the idea of bargains and savings. The problem becomes that savings is not always savings.

Several years ago, I help develop an economic justification methodology specifically for my employer. As I had done this previously for other employers it wasn’t a large stretch if all they wanted was a standard ROI procedure.   I had brought up to management building an business case on time savings would have little value as CFOs and other management would know time saving is not economic benefit unless you do something with it or avoid having to get more resources to accomplish the goal.

The simple examples: I could automate a process using technology “saving” one hour a day per person. If I can defer hiring additional resources (cost) to accomplish a goal for a smaller investment in the technology, then I’ve actually saved money. If, however, I “save” one hour per day of staff time and nothing is done with that time, then I’ve actually lost money. If I continue to save time and money this way, I’ll be bankrupt in no time.

My advice for avoiding such a problem is while in the planning phases of a new initiative consider what you’ll be doing with the savings. Will the staff be able to effectively use that additional hour a day? This could be getting out one more proposal to a potential client, exchanging knowledge between peers, or any number of other activities. The key here is to have a plan on how that savings is to be used.

Started Enterprise Portfolio Management CMM white paper last night.  Expect this will become a finished chapter in Enterprise Design and Engineering book in progress.  Presently collating and organizing materials from all the engagements and methods I’ve produced for corporations over the years into a cohesive practice guide.  This will be a companion guide to the tools suite I am working on to release some time end of year.

enterprise-portfolio-management-white-paper

Enterprise Investment Portfolio Management Level 3 Practices – Alignment

Integrated Portfolio Management

Introduction

One of the most difficult challenges in businesses is alignment, and with increased size the challenge only increases. Add to this corporate version of the telephone game the various contexts that are within modern corporations today and you are lucky to have sixty percent alignment.

A typical scenario that has been externalized is the common critique about management consultants and other associated business management business operations divides. How often does one hear “Culture eats Strategy for Lunch” or something similar. Or from the alternative perspective “If I ask my customer what he wants, he’ll just say a faster horse” thus demonstrating that operations misses the point that businesses and the market have never been static; and competitiveness continues to have a shorter and shorter shelf life.

At the core of this dilemma is that at each level of a corporation the context, responsibility, accountabilities, and concerns are different. And typically do not have a mapping between such. What I theorized is that an Integrated Enterprise Portfolio can mitigate some of this issue.

Such a portfolio not only captures the concerns of each level but provides that mapping so vital to creating alignment between the layers of an organization. This section of Enterprise Investment Portfolio Management: Level 3 Practices –Alignment proposes to define a mapping between the various visualization tools in popular usage such as Business Model Canvas, Benefits Dependency Network, Strategic Capabilities Network, SAFE™ etc.

 

Business Model Canvas and Agile-like taxonomy

Business Model Canvas and Lean Canvas over the past few years have become many management consultants and executive’s most favored tools. In a one page visual someone can see how a business creates value for both stockholder and customer. Unfortunately, once we leave the world of executive management and strategy we lose both context and concern.

While it is unlikely we can transmit context, the concern can be projected or mapped into another context that lower levels of operational employees can align to.

Business Model Portfolio Alignment

Above is initial draft of this mapping. The Agile-Fall taxonomy in the organizations I’m working with may have other labels but still follow the same hierarchy as well as are still in the evolutionary state.