Enterprise Investment Portfolio (Part 1) – Improving Performance

Looking at  Internal Investments as a portfolio put in perspective the way Enterprises are internally investing in changes considering risk and opportunity at a global level rather than at project level.

The following classification of investment (introduced in  “How to fight “Business Urban Legends”) follows this approach: 1- Improving Performance 2- Sustaining the current Performance 3 – Survival & Adaptation to context

Improving Performance

THINK PORTFOLIO OF VALUES: Chris Potts, a well-known corporate strategist, suggested to approach the performance of portfolio as a set of values rather than the cumulative NPV (Net Present Value)generated by individual projects (I recommend his book “FruITion: Creating the Ultimate Corporate Strategy for Information Technology“) . Using this approach, arbitration of investments is appropriately Aligned With The Overall Company Strategy. Each organization can define its own strategic measurements dashboard and consider it as a validation point whilst investing in changes. Concepts such as “Balanced Scorecard” are perfectly adaptated to this.

THINK RISKS & OPPORTUNITIES : Back to the proposed classification, “Improving Performance” investments are specific in nature as they challenge the way an Enterprise is generating value. Processes, organizations and technologies will need to be overhauled to reach a better level of performance. These changes creates Risks, that need to be mitigated, & Opportunities, that need to be exploited in the future.

THINK UNCERTAINTY OF RETURN: Another uncertainty to consider is linked to reaching or not the level of performance expected by the investment at a specific time. This has to be managed according to the “risk profile” of the company. Two classes of variables are usually responsible for this situation: The Execution Alea (Initiative on time, on cost, performance expectation fullfilled etc…) and the Context Alea (Expected Market growth, variation of the competitive landscape, regulatory environment, Industry Economics etc…).

LET SEE HOW IT WORKS: Let’s have now a closer look at the footprint of this type of investment, and how other categories might be impacted. For example we could consider improving our market reach by investing in expanding international dealer/distributor agreements, restructuring a division by industry, implementing a Customer Analytic System, developing promotional materials in different languages. All of this make sense and priorities will have to be established.

Most of the time companies are looking at the amount to invest, when they can expect a return and what are the risk (Execution Risk) and make their decision. This is rather a limited view of economical decision as it push them to choose the shortest term return – hence minimizing the risk. In addition when designing the investment, it is common to only integrate the one time cost of the initiative and new recurring costs they might incurred.

By using the suggested approach, organizations should look at the Impact of such grow and :

- Understand the necessary adjustments to sustain, in the future, such level of performance. For instance, how our back-office is going to handle an increase level of orders, or talking with people that are not English native.

- Understand that new practice adjustment will need to take place; for instance doing business with dealer abroad might required specific regulatory and market expertise that an organization does not have today.

- Understand that implementing a quick IT package could generate redundancy of data which could further create inconsistency and negative productivity impact.

Conversely,

- understanding that dealers or industry associations might be interested by getting some analytics and paying for this could generate a future stream of revenues if we are investing in the right infrastructure.

- Understanding that investing in the comprehension of market network, and industry network work could lead to earlier leads and thrive the company branding.

SO WHAT? All of this is common sense, when a Disciplined Approach is used and we are looking the Value Created Globally not project by project; it becomes rather evident,  that analyzing investment thru the cumulative list of expected returns from individual initiatives could lead to an increased Risk and missed Opportunities.

I hope you enjoyed this first section.

How to fight “Business Urban Legends” – Integrate Investment Portfolio to BI

Business Urban Legends are everywhere and sit at the heart of each investment decision. Interestingly enough, companies claim their unique needs, culture and business models which make them different from the competition; yet they are prone to follow generic public statements (investment in central ERP has no ROI for instance) in the very heart of their strategy.

This could lead us to think that overall investments for a business are not managed properly, and companies prefer to apply others (the ones that are different from them) principles & lessons learned to overhaul their strategic assets.

If understanding what the competition is doing and what has been the result is always useful, it is different to a apply systematic process when it comes to understand the return on our own investments which goes beyond the usage of discounted cash flow methods.

It is not unusual to see businesses spending an incredible amount of time and energy to justify an investment; yet when it comes to control its final performance, no consistent effort is existing. There is here, at my opinion, two major flaws in the process: 1 – The lack of continuity in the investment discipline thru the entire life-cycle, and 2 – The focus on return project by project. (see “Integrate IT in the Company’s Portfolio“

This approach leads companies to rely on “Business Urban Legends” which could be existing within the company itself.

In this post, I suggest to use a disciplined approach which could allow company to optimize their investments based upon the capability of their strategic resources not on beliefs . The decision of “where to invest” should be dedicated by the strategy and is not part of this exercise.

If we are looking at the overall structure of business investments, we could consider investing in:

1- Improving Performance & Growth

2- Sustaining the current Performance & Protecting market share

3 – Survival & Adaptation to context

We can observe that these proposed categories are highly integrated. For instance “Improving Performance” will required to absorbe this new value in the “Sustaining”. Conversely not investing in “Sustaining” will at a point of time required to invest in “survival”.

The interest of this classification is that it pushes organizations to approach investment with a minimum discipline and develop awareness regarding their potential impact (Risk & Opportunity).

Optimizing an investment portfolio will become a matter of managing the risk & opportunity generated by investments and  external context (Market, Economics, Social), based on strategic priorities.  If it sounds simple, the execution of this principle is becoming extremely complex without having in place a living knowledge repository for investment. If the basic attributes could be tracked on a simple excel spreadsheet like: investment amount, expected return, break even; the understanding of risk & opportunity required a much broader set of attributes to answer questions such as:

- “What could be the premium cost to leverage an investment, and what is the cost of exercising this option?”

- “What is the overall profile of a past investment and what remaining potential value I can get from it, and at what price?” (See “CIOs, Manage your S-Curve“)

-”What is my exposition to risk?(See “The Dark Art of IT Investment“)

This is where BI solutions could help structure and extract relevant metrics to guide an organization toward the optimization of its investment portfolio. Today most of the companies are relying on market generic statements or beliefs for investments, but implementing a strong discipline and leveraging BI technologies, will enable them to lead their own destiny.

I will develop this model in future posts and elaborate a complete example on how it can be applied in a real case.

The Great Project Manager (Final Episode) – Building Momentum

Several years ago, I have the chance to read Jim Collins’ book – “Good to Great” (G2G), that has changed the way I was approaching performance in Project Management. I suggest to share with you my learnings in applying the different concepts raised in this book into the management of Strategic Projects.

The 5 key idea sets of G2G are: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.

The flywheel image captures the overall feel of what it was like inside the companies as they went from good to great. No matter how dramatic the end result, the good to great transformations never happen in one fell swoop. There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution. Good to great comes about by a cumulative process – step by step, action by action, decision by decision, turn by turn of the flywheel – that adds up to sustained and spectacular results.

Here we are, this is the final episode of the serie “The Great Project Manager”. This flywheel’s  concept was for me certainly the most insightful of all and has truly changed the way I approach change in Project Management.

PM are often confronted with initiatives that truly challenge the established consensus, and impose an organization to change.  Most of the time, we call for change agents & dedicated program to help people transitioning to the target practices. But overall the experience of PM regarding changes are always challenging and you never seem to learn enough to have one flawless process that guaranty success.

According to Jim Collin’s study, good to great companies build momentum; step by step they are improving, and they do not seem to manage changes at all: it just happen. I understand how provocative this statement can be. However I personally discovered the power of such proposition whilst facing large strategic projects; and I have identified two principles that I try to enforce when dealing with such initiative.

1 – Building momentum starts with “Rules of engagement”. After having identify the right persons in the bus, it is important to set up some ground rules that will enable the team to work appropriately. Some example could be: “Meetings start and finish on time”, “Minutes are validated by the group, and always available”, “On a weekly basis an hour meeting is organized, seeking improvements to the way the team operates” etc… Although these measures will not deliver instant greatness, they are here to establish its foundation. Week after week the team will improve and deliver consistent results based on these principles.

2 – Rules of Engagement should enable targeted changes: You need to build inside your project the foundation for the changes you want to implement. If in the targeted model:

- People need to communicate virtually, use your project to infuse this type of change.

- Centralization of backoffice is required, embed progressively a similar approach in your project.

- Marketing need to be more proactive to customer expectation make them the champion of project improvements.

By applying these principles,  teams develop greatness overthe life of critical projects and adaptions to change are easier. Having said that we must recognize as professor George E. P. Box, “All models are wrong; some models are useful”. My proposal here is not to revolution the way we manage change in project, but rather to built on interesting findings to ease some of the pains we may be facing when dealing with changes.

That’s all folks. I really hope you enjoyed this serie of posts (The Great Project Manager”) as I did. I would like to thank you all for the encouragements, direct feedback and comments I received which helped me to finalize it in a reasonable time-frame.

Find the previous episodes here: Level 5 Leadership – First Who, then What – Confront the brutal facts – Hedgehog Concept – The Flywheel and the Doom Loop.