How to measure end-to-end portfolio performance
by Chris Potts, on 27-Sep-2019 15:19:41
In this fourth and final part in this series of guest posts, enterprise investment specialist Chris Potts, focuses on end-to-end portfolio management, concluding that – from ideas to outcomes – it’s all one portfolio.
The process of making investments, whether in change or anything else, means continually weighing up risks and rewards. We must always put at risk something we value, to achieve our investment goals. The only certainty we have to rely on is that it’s impossible to know what will happen. Time will tell what risks we ended-up taking, and what rewards we got in return.
An investment strategy and a portfolio are the essential tools of the trade. At its simplest, our strategy is one of two options: set a limit on risks and maximise rewards, or target rewards and minimise risks. If our strategy were neither one nor the other, our choices would lack clarity and focus, and our changes would under-perform. For any enterprise driven by specified goals (I have never seen one that isn’t), by implication at least the second strategy applies.
Our portfolio is how we execute that strategy, through all the changes we’re currently betting-on. We also use the portfolio to value each new idea, as that depends on how it fits with our other investments. We target and measure performance for the portfolio as a unified whole: achieving all our goals, at the speed that we need to, and with the least possible risks and resources.
An efficient portfolio for investing in change
Our changes, in total, must be as efficient as possible, including the ones that don’t turn out as we’d hoped. The ideas-to-outcomes investment process needs to be waste-free, smoothly executed, and continually improving. We invest only in changes we need, pull each one through the process at just the right speed, and make the very most of our skills and resources.
Efficiency also applies to the risks we are taking, to get the rewards. Changes can jeopardise the very same goals that our investments are there to achieve. For example (using the sample list of goals from my previous article): we could be putting our Compliance at risk with innovative Products, or putting our Continuity at risk by transforming our Structure. Every change we invest in, whatever goal it is aimed at, demands that we put our Costs goals at risk. An efficient portfolio, in this context, is one where attempting to de-risk it further would lead to less-than-targeted rewards.
The best way to make sure we are investing efficiently is with a joined-up portfolio for all of our changes. While it’s common to have various portfolios, for different phases or types of change – innovations, waterfall projects, agile sprints, and others – there is only one enterprise strategy, with its overall goals and milestones. To achieve it means managing an aggregate view of probabilities, risks and resources. One master portfolio, linking-up all the others, also helps us to keep creating our truly big-picture outcomes.
All the ideas our enterprise has ever invested in, whether they ended up working or not, have together created three big-picture outcomes:
- Identity – the characteristics that make our enterprise unique, such as brands, products, culture, values, and our interactions with people and markets.
- Performance – how we go about our business, day-to-day, and the measurable results we therefore achieve.
- Durability – our ability to continue succeeding, through new opportunities, challenges and risks.
Our enterprise lives in a multi-speed world, of increasingly fragmented change, and an ever-growing range of ideas. Each change we invest in now, and beyond, has the potential to impact our big-picture outcomes, as well as our portfolio goals. There are risks that are new to many of us, and rewards if we know how to get them.
If your enterprise is still working with fragmented portfolios, now is the time to start joining them up. With one end-to-end portfolio for investing in change, we can keep transforming ideas into outcomes (at market-speed and efficiently), innovate as an integral part of that process, and continue to achieve all the results that we want.
Click the following links to read Chris' previous three articles in this series on 'How ideas turn into outcomes', 'Why some ideas work better than others' and 'Dynamic investment, flexible delivery'.