Benefits of portfolio management
Before we go through the step-by-step of effective portfolio management, let’s look at some of the aforementioned benefits.
Portfolio management can:
1. Increase your chances of success
How do you know which parts of your business have the most potential? How do you know which require the greatest allocation of resources? Of course, you might be across your revenues and have your hunches, but have you undertaken a systematic review of all of your operations? Doing so would allow you to compare, across all your different projects and programs, things like market share and size, revenues and expenditures, and more.
This kind of analysis is vital for determining where the hidden gems in your business are, giving you the opportunity to funnel extra resources in their direction. That might be the key to a successful project and make the difference between a best-selling product and a prototype that never makes it to market.
2. Protect you from risk
The idea of portfolio management comes from the world of finance, where fund managers divide their clients’ investments into portfolios containing a variety of different assets, rather than putting all their eggs in one basket. This diversification is designed to minimise client exposure to any catastrophic asset failure.
Similarly, think about your own business. How dependant are you on a single product or service? If that part of your business ceases to function as effectively, or market conditions change, how might that impact your business?
From a hiring perspective, how reliant is your team on one skill or personality type? Incidentally, you can use objective-based campaigns to meet a variety of hiring goals. But you would be better protected from the loss or failure of that particular employee or service if you had diversified your resources in a more intelligent manner.
Portfolio management allows you to analyse and assess those risks, and then gives you the tools to respond accordingly to reallocate resources or rearrange project relationships. As with the first benefit, you might also come to realise that you need to diversify your offerings, or cut some programs, to better balance your portfolio.
3. Save you money
Inevitably, as your business grows, projects develop, and new teams are added, budgeting inefficiency can arise. If you are a software company, you might respond organically to the growing market in AI by creating a new team and program or projects to take advantage of the opportunity. But you might not realise you are doubling up on costs by needlessly replicating elements of your existing business.
With portfolio management, you will be able to reveal these inefficiencies, and restructure your operations to reduce double-up and take advantage of economies of scale.
Portfolio managers should thus have access to financial expertise in order to analyse budgets and balance sheets.
4. Streamline workflows
As is true of money, so is true of time. Organisational double-up can occur not only in your finances, but also in the responsibilities of your personnel. Have you ever worked in a department and known there was someone in another department who was better placed to do some part of your job? It can be frustrating to be working inefficiently on a task when your time could be better spent elsewhere.
If you decided to take the initiative, you might go to your manager to suggest a change. But often enough, these workflow inefficiencies can fester for long periods of time, undermining your efficiency and potentially draining morale.
However, by arranging all of your projects and programs into portfolios, you can better see and adjust labour to produce the most efficient outcomes.
5. Refocus your operations
Every company has a vision, a purpose, a mission. You might have paid quite a lot for a consultant to help you develop it. But it’s easy, in the day-to-day operations of your workplace, to lose sight of all that and focus only on the tasks at hand.
This is truer the further out from management you go. In many cases, front-line employees can rarely consider the ultimate purpose of their duties and this, too, can lead to your actual operations drifting away from the core business strategy.
With the eagle-eyed perspective of portfolio management, you can recognise where your operations are not aligned with your strategy, and adjust accordingly.
How to manage business portfolios
Successful portfolio management is a cyclical process that involves ushering your business through a potentially major transformation. You may have to restructure departments, reallocate resources, cancel programs and even let go of valued staff. This cycle can be broken down into four stages:
- Strategise and organise
- Analyse and prioritise
- Review and adapt
Let’s look at those steps in more detail:
Step 1 – Strategise and organise
The first thing to do is meet with senior management to reiterate the company strategy and objectives. This can be a useful exercise in and of itself, but it is of course essential when you are planning to evaluate projects and programs according to their contribution to the above. Even better if this strategy can be coalesced into quantifiable metrics, such as achieving a certain share of a particular market by a certain date.
You then need to produce (again, with the help of senior management) a schematic of how the company is actually organised now, according to a hierarchy of programs and projects. Projects might be further sub-organised into smaller projects, project phases or ongoing programs. This should produce a model of your business’s current portfolio arrangement.
Step 2 – Analyse and design
The next step is to analyse the performance of all current programs and projects and their adherence to the company strategy. A popular tool for performing some of this analysis is the BCG Metric or Growth/Share Analysis. It uses a graph with axes for market growth rate and relative market share, and divides products into four quadrants:
- High market growth and high market share: ‘Stars’
- High market growth and low market share: ‘Question Marks’
- Low market growth and high market share: ‘Cash Cows’
- Low market growth and low market share: ‘Dogs’
Once you have completed your analysis, you can design a new operational structure, or else decide to add or remove programs or products. In general, the BCG Metric recommends trying to take action on ‘Question Marks’ to decide if they will become ‘Stars’ or ‘Dogs’. ‘Stars’ should be allocated more resources to try and shift them into the comparatively more profitable ‘Cash Cow’ category, and poor ‘Dogs’ should be considered for retirement.
Step 3 – Transform
Now, you need to execute the transformation of your business structure. This is usually the most difficult part of the process, as it involves making weighty decisions about resources and personnel. If you were an energy company attempting a restructure away from fossil fuels into greener energy, this would mean shutting down entire wings of your business. However, it’s essential for improving the overall health of your business.
Business transformations such as this can be long and complicated. It’s important not to rush, but instead to be methodical throughout the change.
Step 4 – Review and adapt
Of course, no planning is fool-proof, and hindsight is always 20/20. It’s important to go through a process of review throughout and at the end of the change process, to ensure that what you’re doing is having the intended results. Changing market conditions or unintended consequences can force you to reassess your company strategy or the posture of your portfolio. Bring these insights forward into your next iteration.
As you can see, portfolio management incorporates a broad range of processes and management responsibilities. In particular, portfolio management requires skill in three key areas:
- Strategy development
- Project/program management
- Change management
For this reason, you should ensure that whoever is appointed to such a role has extensive project management experience (as you are essentially transforming your entire business into a big meta-project for the process). If you are outsourcing, make sure your consultant has the same.
Portfolio management, if executed effectively, has the potential to totally transform the operational structure of your business. Or it could give you just the tweaks you need to allow what is already working well to truly shine.