Manage With a Portfolio Mindset

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Ron Ashkenas' blog post on Harvard Business Review. September 4, 2012. Manage With a Portfolio Mindset. Because so much
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Ron Ashkenas' blog post on Harvard Business Review September 4, 2012

Manage With a Portfolio Mindset Because so much organizational work is done in silos, we sometimes forget the common skills and approaches that can be leveraged across the enterprise. One such skill is portfolio management, the application of systematic tools for reducing risks and maximizing the return on investments. Portfolio management is conventionally associated with financial strategies: Instead of putting all of your money in one place, you spread it around and create a diverse portfolio of different types of investments – stocks, bonds, small-cap, large-cap, domestic, international, etc. You then manage the risk and return in the portfolio by adjusting the mix and amount of investments, since it is unlikely that all of them will rise or fall to the same degree simultaneously. But what most people don't realize is that this thought process can be applied to other organizational areas. Here are three examples: Innovation: Companies that continually innovate – such as Google, Intuit, 3M, P&G, and Apple – don't put all their eggs in one basket. Instead they create portfolios of innovation projects of different types, technologies, and markets, with large numbers of early stage projects and smaller numbers over time. The companies then actively manage these portfolios by allocating resources differentially – periodically killing some projects while doubling down on others. Conversely one of the reasons that companies struggle with innovation is that they don't manage the portfolio of projects with enough rigor or discipline, allowing poorly-performing efforts to continue while starving those with more potential. Talent: Impersonal as it sounds, people are also assets that need to be managed. As such, good managers make sure that they have a mix of solid performers and superstars on their teams, with different strengths and at different stages of development. They then actively manage this mix by moving people up or out and by investing in people with the most potential. In successful talent development companies, like GE and IBM, this portfolio management process is repeated and reinforced at the divisional and corporate levels – so that high-potential managers and contributors are given resources and attention while poor performers are let go. Sales: For many companies, selling is also a numbers game, with different types of prospects at different stages of the sales cycle. The best salespeople make sure that

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they have a mix of targets – many in the early contact stage, fewer that receive proposals, and a select number that are almost "closed." Firms with strong sales capabilities, like Merck and Cisco, continually adjust their investment and focus in terms of product mix, geography, customer segment, and stage in the sales cycle. There are many other areas where portfolio management also can be applied, such as managing IT investments, orchestrating continuous improvement projects, and refreshing an organization's product/service offerings. Unfortunately, despite all of these applications, portfolio management usually is not considered a core competence for managers, which could explain why many of these organizational areas are less effective than they could be. If you want to increase your impact, think about whether portfolio management thinking might be useful in your area. If so, consider the following questions: 

What's included in the portfolio that you are trying to manage? What data and information do you need to determine what's in and what's out, and where items fit in the portfolio?



Is the portfolio effectively diversified so that you can spread the risk? Do you have different types of investments? Do you have the right volume of investments at different stages?



What criteria can you use to make decisions about the portfolio – to remove some items and increase investment in others?

Ron Ashkenas' blog post on Harvard Business Review http://blogs.hbr.org/ashkenas/2012/09/manage-with-a-portfolio-mindse.html