I always felt that the way companies are looking at their investment portfolio was somewhat missing perspectives. Focusing their needs on the current year, without any red flag mechanism (See “Confronting the Brutal Facts“) showing the limit of their investment strategy.
There is a good practice that could enable Enterprise to understand when the tipping point is reached, and when return on investments could only decrease.
Whilst investing in new performance businesses are either using past investments to grow further their return (“Leverage”) or either setting up a new platform on which future investments can easily deliver incremental benefits (“Seed”). The S-Curve theory concurs to this approach. (See “The dark Art of IT investment“)
For example following the implementation of an integrated package (such as an ERP); which will streamline the processes and improve data management, a quality department can then tackle with uniform management dashboards across business units which will trigger additional benefits. Investment in such ERP platform (“Seed”) enabled a future investment in quality dashboard (“Leverage”).
Whilst considering a balanced investment strategy, leaders should focus on which part of their investments is related to “seed” future performance and which part is to reap benefits and leverage. “Seed” investments should always be measured and control over a long period, and challenged by new opportunities that could deliver better incremental benefits.
During your next annual plan try this practice by identifying “Seed” and “Leverage” investments related to new performance. You might get signals that might change your approach of investment.