Creating a Portfolio of Strategic Options

Introduction

This paper presents an approach aimed at making your company an agile competitor while keeping you focused on your long term corporate and marketing strategy. It presents a strategy portfolio as an important strategic marketing tool.  ¹

Investing time in developing the company's portfolio of strategic options is often the impetus to create a consistent vision across the executive team. Every member of an executive team or board must be able to define a company's mission, describe its core product or technology, and state the company's long-term objectives exactly the same way. Not being able to do so sets a company up for tactical missteps. A collaborative approach involving the collective creativity of the executive team to define all of the attractive alternatives, growth strategies, and defensive reactions can result in realizing the greatest opportunities. This process is also essential to creating and maintaining a consistent vision of a company's strategic options.

Foundation for the Discussion

A strategy portfolio is a coherent set of options that address new capabilities and new potential markets. This enables tactical opportunism within the company's long-term mission.

Developing your strategy portfolio is an essential step in your company's strategic road mapping process. It ensures that all product strategies and marketing strategies are aligned with the company's mission and that the company remains (or becomes) nimble.

There are differing definitions for strategy and planning. Traditionally, formal strategy and planning implies setting positions, targets, and measures. Alignment means follow the leader. Assets are allocated based on forecasts that are expected to hit their targets. In contrast, there is agile, offensive planning. This emphasizes organizational learning and preparing for whatever conditions may arise. Alignment means learn and collaborate. Agile organizations vary in size but are distinguished from their traditional, lumbering, counterparts by their ability to read the environment and to react quickly.

What is the importance of a strategy portfolio? It is the basis for operating the agile business. It lets you reposition your company more quickly than the competition. It helps you uncover hidden capabilities and market-knowledge constraints. It includes establishing processes to minimize the cost of creating and maintaining the portfolio. It provides a means of optimizing the company strategy faster and easier. An important part of this optimization is considering alternative capabilities that could profitably meet customer needs and considering or identifying future markets or new customer behaviors.

Why does a strategy portfolio matter? Let's borrow some concepts from Sun Tzu's Art of War. Imagine that you are going to battle, as indeed you are. Just as a confused army leads to another's victory, a confused company is unlikely to succeed. To continue the analogy, knowing when you can fight and knowing when you cannot is important; to be victorious you must wisely choose your battles. You must know your competitor's strengths; understanding and adjusting to the competition's strength allows you to achieve victory. The company whose ranks are united in purpose can best achieve their goals. Those who are well prepared and who go into battle with competitors who are less prepared have positioned themselves for victory. When management is capable and shares a common vision, they can be left alone and achieve the goals. Having a common view of a strategy portfolio is the key part of a game plan allowing a company to go on the offense and achieve success.

Moving Towards a Strategy Portfolio

What causes a good strategy to fail? A good strategy can fail for any of many reasons: poor execution, initiatives that are inadequately funded, resources and/or skill sets that are unavailable and difficult to acquire, strategic decisions not converted into decisive action.

What causes a bad strategy to be created in the first place? Obviously poor planning is one possibility. An absence of a bottom up strategy or gaming to determine what is realistic is another example. Untimely or incomplete information gathering is a common problem. Slow decision making, lacking a framework for decision making, and ego driven decisions rather than customer driven decisions are other common problems.

The first step in creating a successful strategy portfolio matrix is to identify points of leverage. What are your unique leverage points?

• Financial Relationships/Assets
• Intellectual Property/Technology
• People/Culture
• Scale/Efficiencies/Processes
• Partners
• Distribution

The second step in creating a strategy portfolio matrix requires that you contemplate "what if" scenarios. Can you identify the five most disruptive events that could cause your business to fail? (Think in terms of business events rather than national tragedies or Armageddon.) What is your plan to address each of these events to prevent them or survive them?

Similarly, are you prepared to address positive "what if" scenarios? Can you identify the top five trends that could positively impact your business? Do you know what resources you would require and what changes you would make to respond to such opportunities?

The next step in creating a strategy portfolio matrix is to create strategic and tactical responses. Laying the groundwork for this requires being able to answer these questions.

• Who are your top three direct, and your top three indirect, competitors?
• What are their greatest strengths and weaknesses?
• What tactics could weaken their positions?

Of course, it is not enough to simply create these strategies. You must evaluate their appropriateness, now and on an ongoing basis. Responses must be consistent with the corporate mission. If inconsistent, something needs to be changed. Is it the response or the mission? Responses also must be consistent with the burning needs of your target market. If inconsistent, are you pursuing the most financially attractive or most strategic market segments, or does the response require change?

Another step in evaluating the responses is determining if you can pull them off. Resources must be adequate. Your internal resources include capital, people, culture, technology, and partnerships. Can your resources rise to the opportunities and stand up to the threats? Can you finance your strategic options of choice?

Building Your Strategic Portfolio Matrix

Building your strategic portfolio matrix can be illustrated by the following table.

Conclusions

Creating a portfolio of strategic options makes you an agile competitor. It makes you less likely to let tactical opportunism deviate from long term strategy. It makes you more likely to invest assets appropriately. Creating a portfolio of strategic options makes a better company for your customers, for your employees, and for your investors.

¹ The ideas from this paper were presented by Vision & Execution as a workshop sponsored by RightHand Partners in the fall of 2002.