What drives a successful Corporate Portfolio Management strategy?

In order to establish a Corporate Portfolio Management discipline within your organization, you need to focus on two main dimensions -- organizational behavior and process. Below is a useful framework as you think about where your organization is today and where you want to take it.

While myriad consultants and software vendors will offer the illusion that some simplistic scorecard, report or software solution will help optimize your discretionary investment portfolio, they are, simply put, selling you a dream. Scorecards, reports and software solutions can help enable Corporate Portfolio Management if the appropriate process is put into place and organizational behavior is appropriately aligned with CPM. If a scorecard, report or software solution could optimize your portfolio, why would they need you? Silver bullets for CPM don't exist. CPM requires you to get your hands dirty with the promise of significant business benefits. But if you're looking for sanitized and simplistic gimmicks which look good in PowerPoint but don't take into account organizational realities, CPM is not for you.

The framework given above has organizations which are unevolved on both process and behavioral fronts falling into the unconsciously incompetent category, e.g., they don't know what they'd don't know. This is not a bad thing, and I suspect if you are reading this blog, you at least know some thing about CPM, therefore, putting you in the conscious incompetence bucket at a minimum. As you evolve on these two levers, your organization can approach unconscious competence which implies CPM is part of the fiber or DNA of your organization. However, this unconscious competence is unattainable. You can always tweak and improve your CPM capabilities while becoming unconsciously competent being your aspiration.

So what do I mean when I talk about these two dimensions? Let me provide you with a high-level overview of each.

• Organizational behavior - Trying to enable CPM without an understanding of the behavioral changes required is foolhardy if not impossible. Because at its core, CPM is a change-management effort. And it ultimately may make some people uncomfortable because it will ask some previously unasked hard questions that aim to get at better decisions for the overall organization, and it also may instill a sense of competition for resources. In order to move organizational behavior in a way that embraces Corporate Portfolio Management, it is important to understand 3 aspects related to behavior. (1) Incentives - Are people incentivized ($$, promotions, span of control, etc) to give up resources for the 'greater good'? Since the answer is probably no today, is this going to change? (2) Cross-organizational collaboration - Is collaboration across functional or business segments encouraged and occurring? This means collaboration not just in terms of resources but in terms of knowledge sharing. And lastly, there is (3) Decision-making style - Does your organization rely on intuitive, gut instinct to make decisions or use data and analytics to make decisions?


• Process - This is related to how well-defined your processes are around and as related to CPM. If you have a well laid out process, it may make sense, in fact, to enable this with a software solution. But don't be fooled into believing that a software will form the epicenter of a process. At American Express, we relied on a basic, excel based tool for several years. Only after we understood the shortfalls of our existing process and understood what a more advanced software needed did we go out and opt for something more elaborate. From a process standpoint, there are 4 main aspects to consider. (1) Standardization - Is the definition of what is an investment clear within the organization and sufficiently comprehensive? Are cost/benefit analyses (CBAs) across the organization standardized when measuring financial, risk, and strategic returns? (2) Robustness - Are driver-based models used to perform CBAs, and are risks and strategic benefits and concerns sufficiently well-defined and comprehensive? (3) Appropriate centralization - If there are driver-based models, are certain global assumptions such as discount rate or tax rates that are centralized across the organization in a way that promotes consistency in investment modeling? Additionally, is there an impartial group that can serve as the nerve center for the company’s CPM efforts who will be charged with constantly discussing the organization’s portfolio and asking provocative questions of initiative owners? Note: Be careful not to overcentralize as it will demotivate the subject matter experts within your organization. (4) Tracking - Are actual results captured and used to compare past investment performance and improve going forward investments? Is this "closing of the loop" enabled?

If you can make significant progress on these two elements, you're on your way to realizing the immense potential of Corporate Portfolio Management. Be careful not to focus only on one dimension as they are tied to each other. You cannot be highly evolved from a process standpoint and be nowhere on behavior. Behavior generally will lag process as shown below.

I'd welcome your thoughts on what other dimensions you feel might be important in making a Corporate Portfolio Management strategy a reality within an organization. Also, what have you done within your organization to make CPM a success - what tools and tricks can you share with others who are also embarking on this path. And if you've been tripped up on your road to CPM, what missteps might have occurred which you might help others avoid?