Tool Box Talks: Portfolio Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a portfolio matrix.

What is a portfolio matrix and when should it be used?

A portfolio matrix is a portfolio management tool that assists its user in keeping track of several projects within the project portfolio. By visualizing process adherence it enables the portfolio manager to identify critical projects at a glance.

This tool is particularly useful when it comes to coordinating a greater set of projects, where the portfolio manager is not identical with the project manager. It helps to gain an overarching view of the project portfolio and to focus resources on those projects whose success is currently under threat.

How is a portfolio matrix used?

A portfolio matrix shows all portfolio projects’ target performances on process adherence, considering two dimensions for each project:

1.) How much does work progress deviate from original time schedules? (x-axis)

2.) How well is current spending within the frame of the pre-arranged budget? (y-axis)

If project portfolios are relatively small, these two dimensions can be visualised by means of a three-step scale (below plan – on plan – ahead of plan), if a portfolio comprises a greater number of projects, it makes sense to use a five-step scale (far below / well ahead of plan – slightly below / ahead of plan – on plan). Here standardized project reports should be used to update regularly the data input.

After each data update the respective project’s process adherence is plotted on the matrix. A project which is located in the middle of the matrix is exactly on schedule in terms of time and costs. The more a project diverges from the middle axis, the greater are the deviations from plan.

If this is the case, the responsible portfolio manager should take necessary measures to ensure process success.

Beware of pitfall!

A portfolio matrix is designed to show deviations from a project’s targets. However, a deviation is not necessarily to be seen as negative. For while it may sound so when a project exceeds the current target budget, there will probably be no reason for the portfolio manager to intervene if the project is ahead of schedule and the costs are in line with the reached project status. So before measures are taken, the deviations in the portfolio matrix should always be discussed in detail with the project manager.

 

Another trap is lacking awareness of priorities of projects. While the portfolio matrix informs about deviations from set targets, it does not make any statement about how relevant projects are within the portfolio. If you wish to make prioritization visible, a weighting factor can be introduced, which is reprresented by a colour code or the physical size of the projects within the matrix.

What are the benefits of using a portfolio matrix?

A portfolio matrix shows portfolio mangers at once what projects within the portfolio work out according to plan and where there are deviations from schedule. This will enable them to focus their attention on projects about to fail.

 

In this way, a portfolio matrix helps companies to use management resources effectively and to direct their focus on activities requiring extra attention.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Successfully implementing change – Part 1

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It was Christine’s dream job: project manager for a big digitalization project in an established, thriving medium-sized company. She had the opportunity to make full use of her experience, the job was well-paid while she had attractive working conditions, the company offered career advancement opportunities beyond this project and by accepting the position she had made a great career move.

But after only a few weeks she became disillusioned with her new job. No matter who Christine talked to within the executive or management board, everybody supported the digitalization project – but as soon as there was talk about necessary changes to be made, she met with resistance from all sides. “This won’t work”, „It’s too risky“, „Let’s wait and see …“, “Yes, but …” – those were the usual reactions.

The power of the status quo

Cases like Christine’s, in which she met resistance to change is nothing new. As long as you only talk about goals to be achieved, it will be relatively easy to find approval. However, once you start listing the changes required to reach these goals, you’ll suddenly be confronted with a wave of doubts and rejection.

By the way, what is it that makes the status quo so much more attractive compared to change? One reason is sheer force of habit. Humankind gets used to things and processes in less than no time. Once committed to memory, operations are carried out automatically, hence requiring less attention and concentration. To change a routine habit, you need a great deal of energy as you have to focus on the new way of handling things plus put a lot of energy into resisting well-established processes.

Another obstructive force against change is fear. With the status quo, people have the feeling that they know the processes, the way things are connected and their consequences and they tend to think they can control all these things. When you tread new paths, this alleged security is gone because the take-off into the unknown undoubtedly has its risks.

There are many more factors, such as “one’s personal experience” or “personal pride”. The list could be endless; but it all boils down to one truth: To bring about real change, you need to overcome the attraction of established customs.

How change can be successfully put into practice

Seeing this, it is hardly surprising that about three quarters of all change initiatives in companies are doomed to failure. At the same time, at least every fourth initiative is successful. The good news is that chances of success are significantly higher if several aspects are taken into account when it comes to preparing the implementation of change. In the first part of our mini series “Successfully implementing change” we start with taking a closer look at the preparation process necessary for a change initiative to go as planned.

Creating awareness

“We’ve always done it like that.” is often seen as one of the most dangerous statements – and at least in terms of change this is only too true. If efforts to bring about change are to be successful, the mindset behind this declaration has to be overcome.

To do so, all involved persons have to made aware that the changes in question are not only important but absolutely necessary to ensure the success or even the survival of the respective company. Unless it is clear to everybody that carrying on is no alternative; no-one will accept the necessity for change.

Forming a coalition of leadership

While this is being done, you should draw up a competent leadership team. When assembling these change agents you should consider the following aspects:

  1. The team should have sufficient power and authority to put the intended changes into practice.
  2. The change agents should play a key role within the existing organization and ideally be representative of it.
  3. Each change agent should be completely committed to the cause.

It is especially the last point that is vital for successfully implementing change: Those who doubt that change makes sense or will prove advantageous, have no business to be part of the change agent team.

A useful tool to identify suitables candidates for this squad is the stakeholder matrix. A good point of departure is the dimension “interest” as it shows how strongly a person supports the change about to be reached. The dimension “power” must in no way be reduced to questions of rank and hierarchy but should describe how well someone is capable of encouraging others to participate in the process and of winning them over.

Developing a vision and a strategy

The first and foremost job of the change agents is to develop a vision for the change initiative. This vision depicts how the company will look like after the project has been completed: What will have changed, what will remain the same and why will this future situation be better than the present state of affairs? The vision serves as a compass for all activities connected with the project.

Once the goal has been defined, the team can begin to design a strategy that spells out how the organization can develop from the current situation to the company described in the vision. In a way, this guiding vision is like the book of rules for the change process and defines the most important steps on the way to realizing the vision.

Communicating the vision

Communicating this vision is the last key element in preparing change. Usually, staff members are keen on participating in improvement processes of their company. However, this can only be effective if you know where it is that your organization is going.

Here good timing is essential. Without a general awareness that change is strictly necessary, it will be difficult to earn wholehearted approval for the developed vision. Some people will utterly refuse the idea that things have to be changed at all.

If, on the other hand, those in charge one-sidedly emphasize that change is necessary without drawing a clear picture of where the relevant changes are leading, this will cause enormous internal upheaval and make it difficult for people to have trust in the management team, severely hampering the change initiative’s progress.

If a company follows all four pieces of advice when planning to introduce a change initiative, it will be ready for successful implementation. Those aspects and factors that need to be considered to finally reach the set targets, will be the subject of the second part of our blog series.

Should you wish to lead your next project of change to successful completion and are seeking support, do contact us – for free and without any further obligations.

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Tool Box Talks: Porter’s Five Forces

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on Porter’s Five Forces.

What is the five forces analysis and when should it be used?

Porter’s Five Forces Framework is one of the best-known models of strategic analysis. It analyses the external environment of a company and provides valuable input for strategic planning.

This tool is used for various strategic questions, the answers helping companies to optimise their strategies for the portfolio business with a special focus on external conditions, forming a sound basis for decision-making when it comes to entering new markets, or becoming a focal point to systematic innovation processes.

How is the five forces analysis used?

The five forces model, just as its name suggests, investigates five aspects of a company’s environment that have different effects on businesses:

  1. the bargaining power of suppliers
  2. the bargaining power of customers
  3. the jockeying for position among current competitors
  4. the threat of new entrants
  5. the threat of substitute products or services.

For each aspect the current market situation is being assessed: what is the present state of affairs? What changes are to be expected within the next years? What opportunities or threats will follow, affecting one’s own business? The last two questions could be used as a direct input to a SWAT analysis.

Having evaluated the current situation, different measures of strategic action can be analysed and assessed. What is important here is that both all five aspects of the five forces framework and identified developments plus interrelations are taken into account.

Beware of pitfall!

A common pitfall is a biased analysis. Established companies in particular which have long been present in a market or market segment tend to look at their market environment from entrenched positions. This will result in a distorted image of the status quo and a misjudgement of current developments.

To avoid this, it makes sense to use diverse sources of data for the analysis or to have more or less independent external service providers, like a business consultant, make the analysis.

What is the benefit of using the five forces analysis?

The five forces analysis provides a detailed description of a company’s external environment, which is a valuable input to strategy development. It makes it possible to tackle the questions of

  • how a company can best take advantage of its strengths and weaknesses,
  • what is necessary to stay successful in the market,
  • if an existing or a new market share is attractive for the company,
  • if it makes sense to focus on cost reduction or value enhancement,
  • etc.

 

Further, linking the five forces analysis with a scenario-based approach can lay the foundation for a company to apply dynamic strategic planning, thus enabling the enterprise to react to market change while it is happening or even to anticipate it.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Why strategies don’t work – Part 2

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Some years agoTom’s startup really made it: the online platform devised by him and his friends revolutionised the market. The trio’s strategy had paid off and within only three years their firm, having set off as a small living-room startup, had developed into a booming business with 15 employees, a turnout of hundreds of millions and a market share of over 30 percent.

But despite the seemingly positive figures Tom feels the pressure imposed by investors constantly growing and his position is becoming shaky. While revenues and his market share have lived up to his expectations, his company has still not been able to generate profits even though initial development expenditures and marketing costs were not higher than expected.

 

Tom is not the only person who has to fight these difficulties. According to an up-to-date study carried out by David J. Collis from Harvard Business School business strategies misfire because they fail to consider their whole strategic landscape. Young businesses and startups in particular founder regularly as they do no sufficiently take into account value capture and value realisation.

A company’s strategic landscape

As was described in this mini series’ first part, a firm’s strategic landscape comprises business opportunities, the value potential of the respective business model, an enterprise’s value capture and value realisation and their final output.

For a business strategy to be successful, you need to look at all five of these areas, find a suitable answer that does justice to each of them and unhesitatingly translate them into consistent action. While, as was explained in my latest blog, established companies tend to lose track of changes in business opportunities, startups typically make mistakes in a different area of their strategic landscape.

Common mistakes committed by startups

The main strength of startups is that they address so-called hot topics and transform them into a novel business model, or that they fundamentally change the way customers’ needs are met. Naturally, this strategy concentrates on the first two components of their strategic landscape, i.e. business opportunities and value potential.

Yet, to go beyond business opportunities and attractive business models and to lead a company to long-term success, careful consideration should be given to the remaining three elements of a company’s strategic landscape. This is a standard weakness of young businesses and startups: They overestimate the opportunity of making profits in the new market, whereas they ignore the strong likelihood that competitors will eventually copy their ideas, or the young firm fails to build efficient structures and to develop necessary competences of staff.

What follows is, as with Tom and his friend’s firm, that these companies my be capable of creating considerable growth and amplify substantial market shares, but in the long run they will find it difficult to create attractive margins from their turnover and their gained market share.

Robust strategies for startups

If you wish to develop a robust strategy, you have to field all aspects of a company’s strategic landscape. From the outset, startups ought to include questions of value capture and value realisation in their strategic planning.

A good starting point is the following set of four questions:

  • Will our business sector deliver decent profits?
  • How will established companies react to our market launch?
  • How easily will our business model be imitated?
  • How can a startup be scaled up efficiently?

The first question can reveal if a business concept or model should be put to the test in the first place. An attractive business concept with low profit potential (e.g. because the market is too small, necessary investment expenditures will be too high or expected margins too small) will not prove successful in the long run.

Questions 2 and 3 address the behaviour of competitors. In most cases an innovative startup enters an existing market in a new kind of way. But this also means that there are established companies unwilling to give up market shares. Sooner or later they will respond to the new competitor. Depending on how strong their market power is, they may severely hinder a startup’s market development.

When it comes to digital business models, you’ll have to check how easy it is to copy it. If its only innovation consists of not more than a few lines of code, it won’t take long until the idea is imitated. In such a scenario it will be unlikely for a company to gain both high market shares and high profit margins.

The last question examines the company’s future development. The characteristic agility and dynamic resilience embraced by many startups is a good precondition for generating new ideas and launching them into the market. For growth and profitability, however, other skills are required. Long-term success requires you to look ahead and provide, right from the start, the basis for developing structures and competences crucial for further expansion, even if you may not need them at the moment, and to implement this process of company growth early on.

If you wish to know how to combine all elements of your strategic landscape into a sustainable strategy, contact us for an informal free initial consultation.

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Tool Box Talks: Decision Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a decision matrix.

What is the use of a decision matrix and when should it be applied?

Whenever you have to choose from several options of action while trying to achieve several targets at once, a decision matrix will help you to make an objective choice.

When it comes to innovation projects, you often can choose from a range of paths to pursue. Seldom is it clear which of these options will lead to the best result. This is where a decision matrix can be helpful by being explicit about how individual targets are assessed and by ranking all available options in a way that makes sense.

How is a decision matrix used?

When a decision matrix is used to reach a decision, three steps are necessary:

  1. Defining the assessment criteria
  2. Evaluating all options on the basis of these criteria
  3. Choosing the best option following this assessment

To define the relevant assessment criteria, you make a list of all targets or requirements to be met. Make sure that the respective criteria are as independent as possible. Sometimes you may have to combine several similar criteria into a single one. For instance, “acquisition costs” and “operating expenses” can be subsumed under “life-cyle costs”. Should some of the criteria differ in relevance, they can be weighted by different factors counteracting this imbalance.

The second step is to go through each available option by applying these criteria one after the other. Experience has shown that a single 3-step rating system is sufficient (1 = hardly true / 2 = true / 3 = going beyond expectations). If weighting is used, the assessment results have to be multiplied by the respective weighting factor. Then the individual evaluation figures for each option have to be totalled.

Last, the results are put to discussion within the resolutions committee deciding with which option is to be chosen and what is to happen with the remaining options.

Beware of pitfall!

When using the decision matrix, you need to pay double attention: First and foremost, make sure the chosen assessment criteria are independent of each other; for if there is a correlation between several criteria, it is one and the same topical area that is being assessed, thus falsifying the final result. If such interdependencies cannot be avoided, an intelligent weighting can be a valuable remedy by equal weighting of, let’s say, financial, technical and logistical aspects.

Equally important is the process of decision making. As is true for all management tools, the decision matrix delivers more or less unambiguous results. However, it should never automatically trigger a decision. Every result has to be discussed and, particularly so when there are only slight differences between the different options or when the results go against expectations, they have to undergo critical examination.

Why use a decision matrix?

As has been said before, a decision matrix makes it possible to evualate all available options by comparing them with each other, visualising them and making them measurable. In this way this tool allows decision makers to have an open discussion about the pros and cons of each individual option, showing very clearly how suitable each option is for reaching the set targets.

Nevertheless, the decision matrix does not by itself arrive at a decision for or against an option. This has to be brought about by the responsible staff members within a company. Likewise, even the option rated highest can be voted down – on the basis of a decision matrix providing the relevant arguments.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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