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The current strategy of aligning investment to business drivers is faltering

With over 30 years of deploying investment management strategy software and consulting, I have come to realize that organizations require different approaches to support the implementation of their business strategy. Investment strategy is typically viewed as a vehicle to implement business strategy.

For as long as I can remember, the assumption has been that strategy deployment efforts would “somehow” be translated into investments. But over and over, organizations discover the hard way that current investment practices fail to materialize into significant business results. Indeed, the Project Management Institute reports that more than one quarter of all projects do not achieve their intended outcomes, and more than ten percent are viewed as failures.[i]

So why hasn’t investment strategy effectiveness significantly improved, when millions of dollars have been invested in buying software and services to do just that?

What does it mean to be aligned?

For many, “alignment” it means aligning business drivers to the investments.  The problem is that aligning business drivers to investments is not the same as aligning business strategy to investment strategy. It is crucial to realize that simply aligning business drivers to investments is an approach that has not been proven to be optimal for all investment strategy structures.

What approach is effective for all business strategy types?

That depends on the business strategy and investment structures. We have identified three business strategies structures that are used today.[ii]

. The first, we call “Broad scope”. Companies that pursue this are “hedging” on multiple strategies and business drivers. The second, we call “Focus” on one or two key capabilities. In coping with strategic scope, broad or focus and strategic coverage, there are three potential generic investment strategic approaches:

  1. One portfolio focused on key capabilities- SINGLE FOCUS
  2. One portfolio aligned to business drivers – SINGLE BROAD SCOPE
  3. Multiple portfolios aligned to business drivers – MULTIPLE BROAD SCOPE

There is ample evidence that companies that have a FOCUS business strategy cannot succeed by trying to satisfy all business drivers. For many companies, the success will come from focusing on the unique investments they make in improving a capability or by focusing on the capability that seems to constrain reaching their vision.

Focusing on one capability does not mean that a company completely abandons all other capabilities. For example, some companies may pursue an operational excellence investment strategy, others may pursue a product strategy or customer-focus strategy.

A company’s choice of investment strategy should never be arbitrary. It should be the result of extensive analysis of the business strategy structure that the company intends to pursue. The first step is to align business strategy structures to investment strategy structures. The next step is to select the investment strategy prioritization and optimization.

Don’t settle for mediocre

Mediocre investment strategy grows out of misconceptions that aligning investment to business drivers is enough. Following the “alignment strategy”, for all situations, without considering the business and investment structures is a recipe for mediocrity. A strategy is a way to overcome an obstacle or take advantage of an opportunity. If the challenge or opportunity is not well defined, it is difficult or impossible to find an effective investment strategy.

The ideas you encounter will surprise you. That’s because the investment approaches widely used today are aligned to “Broad” scope strategies only. If a firm chooses to pursue a strategy focused on cost leadership, a broad-based investment strategy that is hedging and is broadly aligning to the business drivers is not aligned to the business strategy.

The specific actions required to implement each generic investment strategy vary from industry to industry and from firm to firm. It is extremely important to understand that at the heart of any portfolio management investment configuration is a strategic decision that impacts how a firm will achieve competitive advantage. Following the “alignment strategy”, for all situations, without considering the strategic choices is a recipe for mediocrity.

Choosing the right approach

An adaptable investment process approach offers a new means by which the relevance and completeness of strategic decisions might be maintained. The bottom-line is that no company can succeed by trying to use the business alignment to all situations. It must first find the unique investment strategy structure that aligns to the business strategy structure.

[i] ] See Figure 2 in Beyond Agility: Flex to the Future, Project Management Institute
[ii] Porter, Michael E. (1980). Competitive Strategy. Free Press.
Porter, Michael E. (1985). Competitive Advantage. Free Press

Mike Gruia, Co-founder

Mike is a visionary leader in Portfolio Management, known for his deep knowledge and unique thinking. He grounds his approach in five fundamental pillars: economics principles, applied mathematics, business architecture concepts, system dynamics, and behavioral aspects. Recognized by industry experts, including Gartner, Mike is considered a pioneer in Portfolio Management. He has co-founded three companies specializing in Portfolio Management solutions, including UMT Consulting, a leader in the field before being sold to EY in 2015, and UMT360, sold to Teleo Capital in 2019. With degrees in Industrial & Systems Engineering and Operations Research from Columbia University and the Technion Israeli Institute of Technology, Mike has played an active role in shaping the evolution of Portfolio Management, challenging current practices, and anticipating future trends.