The Portfolio Review – Deploying Strategy With Integrated Business Planning

The Portfolio Review – Deploying Strategy With Integrated Business Planning
Number 2 of 7 in the Oliver Wight Strategy Deployment white paper series
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Introduction

An effective business strategy is one that drives the business. It is deployed throughout the entire organization and used to direct the business decision-making process. Most businesses will claim to have a strategy, but all too often, it remains disconnected from operational plans and their execution. In some cases, the strategy goes no further than the leadership team; it is merely a document maintained on file. However, operationalization of the business strategy is fundamental to an organization consistently achieving its objectives and successfully maintaining the trust of its stakeholders.

In our first white paper in this series, “Connecting Strategy to Execution,” we showed how to integrate the corporate strategy with operations by cascading it down the organization through the creation of individual strategies and plans at the business unit and functional levels (see figure 1). It then becomes the role of Integrated Business Planning to operationalize the strategy.

This second white paper highlights the role of deploying the strategy via the first step in the Integrated Business Planning cycle, the Portfolio Review (PR). The integrated model shown in figure 2 provides a blueprint for how business functions should interact in a collaborative way. It illustrates the key leadership and management processes of a business. Integrated Business Planning sits at the top, and each of the steps is supported by underlying execution processes. The connectivity shown in the model between the different executional processes is vital to a business. Look at the connections between the executional processes depicted in the enabling ‘legs’ of the Portfolio Review, Demand Review, and Supply Review. The connections go both ways. Strong interconnectivity between the processes shown in the model encompasses teamwork at all levels, a collaborative culture, and expectations for more reliable business performance.

Integrated Business Planning connects the strategy to execution to achieve business results, and each month asks these core performance questions to manage any gaps in the strategy and business plans over the 24-to-36-month horizon:

  • How are we doing?
  • Do our plans meet business needs?
  • Are our plans still valid?
  • Do we have any gaps?
  • What are we going to do?

The Portfolio Review is a natural connection between business strategy and the plans for the products and services that will be brought to market to achieve that strategy over time. In the PR, updates to the portfolio plan are reviewed, with a focus on how changes to the plan impact what will be available to sell, what resources are needed to execute the portfolio plan, and how revenue projections may need to change.

Connecting strategy to IBP

IBP maturity stages

Connecting strategy to IBP is a fundamental aspect of IBP, and organizations that want to take their IBP process to the next level would certainly benefit greatly. However, it is not the case that your IBP process has to reach an advanced level of maturity before tackling its link to strategy. You can start by using the Annual Operating Plan (budget) as a reference, since it typically reflects the targets and resources associated with the first year of the strategy. As your IBP process matures, the strategy should become increasingly explicit in your IBP reviews, eventually to the point where your IBP process becomes strategy-driven.

The Oliver Wight Maturity Journey (see figure 3) shows that a typical IBP process goes through six stages of maturity: improved communication, problem-solving, problem prevention, strategy deployment and operationalizing strategy. We find that most IBP implementations plateau at the problem prevention stage, although this is a significant improvement from how the business had been previously managed. Some implementations reach the strategic deployment stage, but to derive full value from an IBP process, the process needs to be truly strategy-driven, and for this to happen, it has to reach the sixth maturity stage, operationalizing strategy.

What is the Portfolio Review?

The key objective of the PR is to address the linkage of the Portfolio Plan with the company’s goals and strategy, and the purpose of the PR is to reach a consensus on a valid and achievable Portfolio Plan with associated financials that achieve the ambitions and plans of the business.

The Portfolio Review manages all product and/ or service portfolio changes. It develops and routinely reviews a feasible plan of activities designed to improve the health of the product portfolio across the whole product lifecycle and strategic horizon. It ensures alignment with strategy and is the forum to make decisions on product portfolio plan changes.

The output of the PR is the Portfolio Plan. The Portfolio Plan encompasses the 4Ps of the marketing plan (product, place, price, and promotion).

The Portfolio Plan also identifies and allocates the required resources, including capital investments, research and development, regulatory, legal, quality, and others.

The time horizon for a Portfolio Plan typically covers two to three years. In some cases, it may be much longer depending on industry circumstances or the level and type of innovation.

The foundational elements and building blocks of the Portfolio Review are shown in figure 4.

Portfolio Review foundational elements

Targets

Targets and investment assumptions typically cover a three-to-five-year time horizon, with the first year of the strategic plan fleshed out and resourced as part of the annual planning process that leverages IBP. This fleshing out provides more granularity to the first 12 months of the portfolio plans and strategies, and officially allocates the investments across the projects and functions.

Project Master Plan

The Marketing Plan is the first step in developing a Portfolio Plan. The business develops a Marketing Plan to achieve its strategic objectives. This involves completing a series of activities, including market segmentation and analysis to determine where to play, plus a strategy with objectives and plans to describe how to win. These marketing strategies and plans are subsequently developed into a Project Master Plan.

When the Project Master Plan is created, it isn’t unusual for business leaders to be surprised at what is being worked on. Typical reactions include: Didn’t we cancel that project three months ago? or Why are we working on a cost reduction for a product that we’re about to discontinue?

These types of questions (and issues) surface simply by putting together the list and sharing it with business leaders.

Establishing the integrity of the Project Master Plan is the second step of portfolio planning. It can be thought of in two parts, the what and when and the how much (left and right of figure 4).

The what and when of each project includes the project name, description, launch date, and attributes such as segmentation of class, lever, type, stage, priority, etc. The how much of each project summarizes the revenue and margin from the business case that justified the project and its contribution to the strategy and the current IBP plan. In addition, there is a summary of the investments in capital, marketing, R&D, and other critical resources, as well as a measure of economic value-added such as net present value (NPV).

The Project Master Plan lists the initiatives, programs, and projects that are actively being worked to achieve the strategic priorities of the business (see figure 5 for a stylized example).

Resources

We defined the purpose of the PR as being able to reach consensus on a valid and achievable portfolio plan and resulting financials that achieves the growth ambition of the business. A common problem is that the same people asked to create a sufficient pipeline of innovation are also establishing the volume and price projections that drive the business cases for new products. This overlap of duties can create an incentive for new product business cases to become overly optimistic.

With regard to resources, the keyword is achievable. Plans are invalid if the necessary resources are not available to execute those plans. If the Project Master Plan lists ten projects to be delivered next year, but the research and development team only has the capability to deliver five of them, then it isn’t a valid plan. Similarly, if the assumptions underlying the projects themselves tend to be biased – either overly optimistic or pessimistic in terms of the volume or margin that they will deliver, then the plan won’t be trusted.


A client in the medical devices industry had aggressive ambitions for new products as part of its growth and financial objectives. The complexity of developing new products relative to available resources led to a focused set of high-priority product development efforts. The organization only achieved its ambitions on the assumption that all the products were launched as scheduled and that their business case was achieved. But when asked how often that has happened, i.e., their proven track record, the data was sobering, less than 60%. This realization was fundamental to replanning their product development portfolio, considering its track record, as well as getting to the root causes for the 40% of projects falling short of timing and business case targets. It was a real eye-opener for the leadership and totally changed its approach.


Where the resources needed to achieve a meaningful Project Master Plan exceed the available capacity of those resources, decisions must be made to balance the portfolio resource plan. The mantra often used is that you need to balance work, time, and resources. Once you have the work, time, and resources balanced, you cannot change one of these elements without changing at least one of the other two (see figure 6). For all decisions to address imbalances in the portfolio resource plan, the key consideration is the priority of a project.

Balance work, time, and resources

Portfolio resource balancing


A case in point

For one Oliver Wight client a key pillar within the business strategy was very clearly around revenue growth through innovative, breakthrough-type new products, but the organization lacked the visibility within its portfolio review processes that would have illuminated a fundamental gap. It was simply reviewing a list of the active new product development projects each month. However, when stacking the projects up against an innovation timeline with clearly defined lanes linked to strategy, the gap became clear. All the projects they were working on were low-tier, cost-reduction projects. When they put the strategy lens against it, the president of this very large business unit asked his team to model diverting all the resources from low-tier projects to high-level, innovative, tier-one projects and show what the business would look like. This transformed the role of employees from focusing on the execution of the short-term status of a project to thinking creatively and challenging the organization strategically.


Performance measures

History is often a leading indicator of future performance, and actual performance should be used as a reference when validating the credibility of the forward plans. If actual performance is below target, the validity of the forward-looking plans should be questioned, the supporting assumptions vetted, the root causes of variances understood, and corrective action plans developed.

Preparing for and conducting the PR

Leveraging the foundational elements

The Portfolio Review’s executive owner is often a product management or product marketing vice president. The owner is accountable for making sure that the results and outputs of the portfolio of projects being worked on (new products, value engineering, reformulations, renovations, etc.) will achieve strategic objectives. The portfolio is often measured in terms of sufficiency. It is essential to assess whether there are enough projects in the pipeline to deliver sufficient growth to meet expected revenue and margin over the next two to three years (possibly longer in some industries). As discussed above, in addition to reviewing sufficiency, it is also vital the information shared in the review demonstrates that the portfolio plan is valid and properly resourced. The project master plan should not be based on hope or wishful thinking – there must be a high degree of confidence that the portfolio plan can be delivered as planned. In preparation for the monthly PR, the PR Leader works with contributors to update the critical inputs to the PR. Once complete, the analysis of what has changed can begin.

Managing change

A key tenet in any IBP review: you have a plan until you change it. In the early stages of implementing an IBP process, there is a period (typically the first two to three cycles) where the participants work on gaining alignment and consensus on the data and IBP plans. Once this is achieved, the focus is on what has changed from the previous cycle and the impact of the changes on the IBP plans. Understanding the cycle-over-cycle changes is not just about the numbers but also, crucially, the driving assumptions.

Once the PR Leader and contributors are aligned over whether the proposed PR plans represent the truth as we know it, they are ready to move to the next step in the analysis, understanding, and managing gaps.

As well as gaps between the PR targets, there can also be gaps in the realism of assumptions and ability to execute the proposed PR plans, typically relating to the resources required – people, physical assets, capital, etc.

Managing gaps

Understanding where gaps exist is the first step. The second is to develop gap-closing action plans to deal with them, but this is based on the understanding that not all gaps will be able to be closed during the current cycle. Hence, IBP looks forward to 24 to 36 months so that longer-term gaps can be addressed. Addressing gaps will often involve reprioritizing projects and resources.

Managing prioritization

Project priority is a crucial input when balancing work, time, and resources. Do the available options require additional resources, and if so, will the business be able to garner those additional resources? If not, some projects in the project master plan will have to be deprioritized to provide additional resources to those that form part of the gap-closing action plans. Resource requirements are often a determining factor as to which gap-closing option is recommended and ultimately selected.

Integration with the remaining steps of the IBP process

Managing integration

The clue is in the name, Integrated Business Planning; integration between the steps of the IBP process is fundamental, and the notion of this integration is often articulated as one set of operational plans.

The proposed PR plans, the cycle-over-cycle changes, gaps, and gap-closing action plans (with their prioritization implications) form the nucleus of the exception-based monthly PR agenda. It is the responsibility of the PR Owner to approve the PR plans and make the decisions required to put the gap-closing action plans into effect. These approved plans become the input into the remaining steps of the IBP process.

A critical integration point for the PR plan is the demand plan and the resulting financial plan. The primary data elements here are units, revenue, and margin, and each of the data elements should be thought of in three layers: 1) base business, 2) recently launched products, and 3) to-be-launched products.

Another key integration point for the PR is the supply plan, especially the availability of critical resources, technologies, capacity, etc., to fulfill the demand plan, which includes changes in the product portfolio. Oftentimes, the supply organization needs significant lead time to arrange new suppliers, components, logistics, etc., to validate the reasonableness of the new product and its business case.

The PR typically uses the approved demand plan from the previous IBP cycle both for base business and recently launched products. It then updates the IBP plans associated with the to-be-launched products, which is the primary input from the PR to the Demand Review. As well as the PR plans associated with the to-be-launched products, the PR provides an output summary from the review meeting summarizing the new information and assumptions, issues captured, new actions, decisions made, any general comments and escalations to other steps in the IBP process.

Summary

Operationalizing strategy is the fundamental remit of Integrated Business Planning. Without this, there will forever be a disconnect between strategy and reality, and strategy remains a theory rather than something that drives the business. As the first step in the IBP cycle, the Portfolio Review is the foundation for the entire process.

The IBP Portfolio Review is vital in ensuring that business leaders have options in what is often the most uncertain aspect of business planning. There is far less certainty in the development and commercialization of new products and services than there is in the selling of existing ones. Without a Portfolio Review, companies can become distracted through the course of the year because business leaders allocate time and resources to deal with near-term issues in delivering products and services. Consequently, they do not invest enough time and effort in filling the funnel of future new product or innovation opportunities.

On many occasions, executives have confided they aren’t confident the right balance is being struck between supporting the existing portfolio and developing the future portfolio. They worry their development teams respond to who shouts the loudest. They know the spark of inspiration that leads to the next big thing is rarely a loud voice in the room.

Without a robust funnel of projects, companies are forced to commercialize less-than-ideal options. Rules on hurdle rates are circumvented because there simply aren’t any other better alternatives.

By contrast, companies with a robust Portfolio Review, find they have developed more options and can be more choiceful in what they commercialize. The demand and supply organizations benefit from a much more timely, reliable, valid, and sufficient portfolio plan upon which to base their plans as part of the IBP process.

How many of the key factors identified in this white paper do you have in place? How many can be improved? For more help, visit our website for an extensive collection of white papers, videos and books, or contact us to discover how you can get the most from your product management process.

In the next in our white paper series on Deploying Strategy with Integrated Business Planning, we look at the second step in the IBP process, the Demand Review.

Read the first white paper in this series: Connecting Strategy to Execution – Deploying Strategy With Integrated Business Planning