The Emergence of Strategic Portfolio Management

By Don Creswell, SmartOrg Inc.

Early adopters recognized the need to manage two types of project/product portfolios—“strategic” (value-based) portfolios and “operational portfolios.” Their successes have caused companies in a broad range of industries from consumer products to medical devices to telecommunications to jump on the bandwagon.

It is important to make a clear distinction between these two types of project/portfolio management.

As the graphic shows, there is a big difference between strategic and operational systems. There is a lot of data available in an operational system to support project/portfolio decision-making at the tactical level. Most of this data, however, is of limited use when making decisions about the future, e.g., market size, market share, product cannibalization, etc.

Most companies do a reasonable job of managing operational portfolios. There are many processes and applications on the market that support these activities, including Stage Gate™, SAP xApps and others, and they do it well. However, companies are looking to value-based management (VBM) applications like Portfolio Navigator™ because their operational systems do an inadequate job of supporting forward-looking, future-based, strategic decision making.

VBM focuses on strategic decision-making: selecting the “right” projects/products in which to invest capital and human resources and tracking value throughout development in tandem with operational performance. (“Right” projects are those projects that have the potential for creating the most economic value for your company.)
Value-based portfolio evaluation was, until recent years, supported by management consultants and it was very expensive. Advances in computer power make it possible to bring value-based portfolio management capabilities to companies of all sizes—at a fraction of the cost of consulting engagements.

By addressing both strategic and operational portfolio issues, companies can significantly raise project and portfolio value. Think about it: studies show that 40% to 60% of projects/products fail to meet expectations. Improve this ratio by a few percentage points and the impact on your company’s bottom line will be truly impressive.

For an in-depth discussion of how value-based portfolio management can increase profitable growth at your company, contact us at info@smartorg.com.