Enterprise investment management is still waiting for the fundamental tenets to be established. In McKinsey’s recent global survey, 31% of their business transformation were successful. At the same time, successful organizations have realized only 67% of the potential financial benefits their transformations could have achieved.
Moreover, nearly 80% of the loss occurs in the investment management cycle. On average, two-thirds of value loss occurs during the project creation, prioritization, and selection phase.
Three actions impacting business transformation success
While no single action or group of actions impacts transformation success, our experience shows that three critical actions can impact business transformation investments and should be addressed.
Selecting the appropriate investment management strategy.
Each firm competing in the marketplace has an explicit or implicit strategy developed thru a planning process. Organizations are claiming that they are aligning their investments to the business drivers.
How does aligning the investment priority to business drivers help us make sense when most firms adopt an investment hedging approach regardless of the business strategy?
It is important to know that most firms have adopted one generic investment approach for broad or focused business strategy.
A tool that helps planners through the maze is – Strategy coverage–Strategic scope matrix. This tool aims to tell managers what investment strategy to follow.
Three generic investment strategy frameworks emerge in the context of strategic scope and coverage. These strategic frameworks include broad scope – one portfolio, narrow scope – one portfolio, and multiple portfolios- broad scope.
The Common Investment Strategies matrix was built on the logic that the Focus strategy results in sustainable superior returns. Ultimately, the company obtains a competitive advantage that competitors find difficult to replicate.
The matrix reveals two factors to be considered when deciding to invest—strategic coverage and scope. Each of the three quadrants represents a specific combination of coverage and scope:
- Broad Scope, One Portfolio. Companies should align one portfolio to their business drivers.
- Focused Scope, One Portfolio. Companies should focus on optimizing or transforming key business and operations.
- Broad Scope, Multiple Portfolios. Companies should align their portfolios to their business drivers.
Selecting the appropriate Strategic Portfolio Management SBM process
The effectiveness of the SBM process is affected by all investment management activities, such as creating, selecting, planning, and managing the investments, and the supporting processes, such as financial end resource planning.
Each of these activities can contribute to the firm competitive advantage and create a basis for differentiation. Most tend to concentrate on the primary activities and overlook the impact of other activities, such as capital planning and resource capacity management.
Project or product-centric decision
The question is – Under what circumstances is project or product-centric more effective?
Many agree that enterprises are massive data processing systems. Experts see the organization and workflows as a mechanism for gathering and turning these data into decisions. According to this view, project-centric, and product-centric aren’t competing frameworks, but they are, in a sense, computing data processing systems. You may agree that people and processes are algorithms; project and product-centric are just different methods and structures for processing portfolio management data. So we are concerned with selecting the appropriate SBM information processing.
There is ample evidence for the crucial importance of investment organizational settings impact.
Thus, some organizations succeeded more not because they have better processes but because they selected the right organizational setting, i.e., product or project center organization. Before deciding on what framework to pick, an organization needs to do a lot of homework. In essence, the decisions regarding the SBM frameworks you select are about choosing between different ways of creating competitive advantage. Our data showed that firms with appropriate and clear frameworks perform better than those that either lack a clear framework or consciously try to follow standard methodologies without considering the optimum SBM strategy for their organization.