In the past three weeks, I was in three board room meetings to support portfolio reviews. In all three cases, the question came up how to best start a portfolio review, and the temptation was to start with a bubble plot showing all portfolio candidates. While this is a good view to start with in an analyst setting, there is a better way to start a board level portfolio review.
Start with a time line
The opening portfolio view that has proven to work best in our practice is the portfolio’s forecasted performance over time (say the next 3-5 years). The typical indicator for this performance can be revenue (particularly in case of a top-line growth business goal), margin, or profit.
In all three examples, when this view was shown (see image above for a typical plot), all executives in the room immediately engaged in the discussion:
- “Is this the right level of growth from our portfolio?”
- “Do we have enough time to fill the gaps in our growth (if any)?”
- “Are we okay with the balance of growth contributions?”
In contrast, showing a bubble plot (whether with costs versus benefit, risk versus reward, or other dimensions plot) often dumbs down the discussion to “Let’s just pick the winners from the top right hand quadrant”. Or the definitions of the dimensions start to be discussed. Less helpful for a good portfolio review.
Why does this time line view get boardrooms engaged?
In a good portfolio discussion at executive level, the question to be answered should be:
Do we have the right portfolio to meet our goals?
The first (almost crude) level goal for an innovation portfolio is to drive growth, and to plot the expected growth helps focus on this goal. Later in a portfolio review, the aspects of strategic alignment, balance, and feasibility should also be addressed. But these do not really make sense if the portfolio is not capable of supporting business goals such as growth in the first place.
There may be more to the attractiveness of the time line view as well:
- It generates a forward-looking mindset
The portfolio’s impact on short and long-term growth will be visible, and discussions tend to become forward-looking. In the absence of this, current (or even past) performance of the portfolio might dominate the discussion.
- The time line aligns with other business processes
Sales and Operations plans (S&OP), budgets, rolling forecasts: all these management information techniques have a calendar time line. Aligning the portfolio’s forecasted performance then comes naturally.
- It is sufficiently rich for good discussion
Maybe surprisingly, the time series view tends to be quite rich: it shows growth versus goals, it shows where growth comes from (and hence a balance). And in a more advanced view, it can show a combination of costs and downstream value.
In short, the timeline view should provide an answer to the question above: do we have a portfolio that meets our basic business goal?
What about bubble and pie charts?
Once an assessment of the portfolio shows that there are multiple ways to compose a portfolio that meets the business goals, the portfolio review can enter a second round. The purpose of this round is to compare these alternative compositions, and pick the one with the best value for money, the best strategic alignment, or then most robust one. This is where bubble plots come into play, showing the individual contributions to strategy, value, risk, and costs. In a pie chart, each composition’s breakdown across business areas, risk categories, markets, horizons etc. is most easily reviewed.
Using indicators such as NPV, ROI, payback time, or related metrics (I have heard “time to double our profit”, “incremental turnover growth over three years”, and others), these views can also link back to the timeline. Showing the profit growth over time tends to make it more visible (can I say: more in-your-face), than just having a number in a dashboard.
How to set this up for success?
In order to use such a powerful visualization, the underlying information about the portfolio must be amenable to the proper portfolio synthesis. In our software solution FLIGHTMAP this is embedded by having a business case model running in the background, to make sure the business forecasts for revenue, margin and profit are in sync with each project’s business case drivers. With the complexity under the hood, this allows an effective boardroom portfolio review.
When I was preparing this blog post, a quote by one of our advisors came to mind. He is a seasoned R&D executive, and his focus on timing is captured by this quote: “For innovation, know-when is even more important than know-how”.