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7 October, 2010 by

Stop Grieving Over Your Portfolio

Optimizing and managing your portfolio within a turbulent environment

At this year’s CEB Finance and Strategy Summit, over 300 CFOs, strategists and business unit leaders gathered to compare notes about their approaches to growth in today’s uneven environment. One of the more robust panel discussions focused on Business Portfolio Optimization during turbulent times. A panelist likened the portfolio decision making and rationalizing process to the five stages of grief—full of emotion, with time (and some therapy) needed to heal all wounds.

I think the grieving process may be an apt metaphor for all of us to consider in light of the unprecedented turbulence we have had to deal with.

  • Stage 1: Denial—We at first refuse to acknowledge the need to revise and in many instances significantly rethink our business portfolio. We must face difficult decisions on which parts of our business to continue to support and which parts may have run their course. “Besides wouldn’t it be better to wait until things turn around to make these choices…”
  • Stage 2: Anger—Why should we have to make these choices in the first place? If only the economy had not tanked…and our line leaders would have stayed the course…and the Board would stop meddling…and investors would get a clue…
  • Stage 3: Bargaining—“Let’s make a deal…” If we just string this decision out for a while, and give a little here and take a little there we should be able to avoid the most pressing challenges…
  • Stage 4: Depression—Now that we have made our choices we have to just slog through and see what happens…if and when the economy turns around, we will see if we made the right choices
  • Stage 5: Acceptance—“Well…at least I still have a job”…and I guess we needed to make the tough choices so it’s better we made them instead of someone else making them for us…

As we move through the portfolio process and experience this broad range of emotions, below are some key questions we should ask ourselves:

1) How can I establish a standardized enterprise-wide growth portfolio decision-making process that will have credibility with my business leaders?

To establish comparability across decentralized projects, consider convening business leaders to set decision criteria and making investments across the entire portfolio by implementing global planning guidelines to ensure a standardized process, developing a mechanism for firm-wide project prioritization and allocating resources based on event triggers. For more information, CSB members should review the following leading practice examples:

2) How can I prevent my growth portfolio projects from getting “crowded out” from my operational budget?

Some organizations have begun to recognize that typical budgets do not provide a complete view of how operating resources are being used. Therefore consider revamping your operating budget process by classifying expenditures by their strategic objective to evaluate their impact and potential overlap. Based on this information, you could reallocate operating resources to higher impact areas.

Other organizations have created a protected, self-funding investment fund created through a productivity charge on the core business. Businesses then would compete for funds that are allocated to growth opportunities that have a payout period greater than a year and may require significant changes to the business model. The competitive nature of the pool and a dual-level screening process can promote ideation around discontinuous growth ideas traditionally killed in the funding process. For more information, CFO members should review the following leading practice examples:

3) What are the key enablers to creating an on-going monitoring process to track the progress of my growth investments?

An enterprise-wide system of templates and processes can help business units analyze and continuously reevaluate growth opportunities. Develop a new investment review process that not only identifies opportunities and roadblocks earlier, but also allows necessary modifications of investments in growth initiatives and a constant reallocation of resources to the highest-return opportunities.  For more information, CSB members should review the following leading practice example:

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