Thursday, 27 November 2014

Using the digital portfolio framework - a recent example

Last week I wrote about a simple framework we're using to help organisations manage their digital portfolio.

A client situation I often find is misalignment between how value is generated in the core and how the more radical innovation is structured. In one recent case the business appeared to make the majority of its money from selling products to middle class women, 30 to 45 years old. They had a couple of digital initiatives, which I'd classify as 'top left' - they did access a new type of customer with a new model, but were being delivered in a traditional operating structure.

One of these was a high end D2C retail site aimed at rich, typically older men; the other an experiential site that showed 'power users' of the products how to use them in a more sophisticated way. The latter had no sales functionality although it did enable links into 3rd party e-commerce.

There were no hybrids and the innovative businesses were located in different countries to each other and to the core.

We discussed a number of issues, in order of appearance:
  1. It was not obvious how the (unclear) goals of the innovative initiatives supported enhancement of the core business as they were aimed at totally different customers. This could be okay if they were aimed at accessing a lucrative new customer type, but it wasn't apparent that this was the case
  2. The portfolio was too small and each of the two initiatives in the innovative area had cost bases more appropriate to proven, scale businesses. There were no clear investment gates to decide to double down, pivot or kill the initiatives
  3. The portfolio had multiple points of leadership so prioritisation was very hard
  4. Talent in the innovative businesses wasn't appropriate, but had instead been transferred from the core and had to learn how to trade the new businesses from scratch. They weren't set up for success
  5. No structures existed to take learnings from the new initiatives into the core or to trial them on larger groups prior to that
Our discussion centred around setting objectives and investment gates for the existing portfolio and how to add new innovative initiatives that broaden the base of learning around the future needs of today's core customers. The other interesting part was around whether there was any need for an innovative way of delivering the new initiatives so that the business can learn about radically more productive operating models... 

I'll leave that there because I don't want to give away too much information. My closing comment would be that the 1-5 portfolio issues are not in any way unique to this business. When you draw initiatives out on the framework and try and link them together with simple measures, like customer type or profitability you can quickly see where the surgery is required and have a really sensible discussion about how to restructure.

Tuesday, 18 November 2014

Digital portfolio strategy: how to use 70:20:10

I thought it'd be useful to write a little about a little framework we've started to use quite a lot in Digital Strategy to categorise digital activities in an organisation's portfolio.

The background to this is in the work we do to align executives on what digital means in their context and where they have capability gaps. We tended to find a couple of common issues:
  1. No one leader has a complete view of what digital ventures were being taken across the business
  2. There are rarely enough truly innovative projects...
  3. ...and those that there are tend not to be directed at specific corporate goals
  4. Organisations lack a means to take the lessons from innovation and apply them to optimise the main business
In my experience about 70 percent of the energy (capital, time, attention) of a business should be directed on optimising the core activities. These are pure return on investment (ROI) calculations where a simple business case can be created. At the opposite end, ten percent should be on hedges against disruption and attempts to create 10x improvements through active disruption. These are return on risk (ROR) decisions made up of individually smaller initiatives that need to be managed like a venture portfolio. Between these two categories are the remaining 20 percent, which are hybrids that use semi-proven concepts from the ROR portfolio to extend the core. In the long term you hope that these can be used to enhance the entire core.

Hopefully the above makes the framework very easy to understand! To use it requires a detective process that uncovers all of the digital investments that are being made and places them on the framework. The axes are designed to give initiatives that enhance efficiency with digital practices and technology as much prominence as those that grow the top line.

What you'll find is that there are likely to be only a few initiatives that actually fall on the diagonal where radicalness of the concept matches the radicalness of the operation that creates it. That's fine - the purpose of this framework is to lead to a conversation about:
  1. How to reduce duplication (particularly in heavily matrixed organisations)
  2. The objective of innovation within the organisation - what 'moonshots' are going to radically enhance delivery of the strategy?
  3. The range of operating models at play and whether they match the evolution of the business
  4. How to make sure that ideas funded in a 'Series A' in the Disruptive Zone can be prototyped in a larger scale in the Hybrid Zone
  5. What outcomes the organisation is after in each zone and how those can be measured
Having baselined the situation using the framework, new digital initiatives can be classified and decisions about the way in which they deliver targets can be made effectively. Hopefully having clarity over the latter will reduce tension about the ownership of innovative initiatives - wherever they sit, they should deliver the corporate strategy and there should be clarity about how they will be incorporated into the operating practices of the core, killed or spun out in the future.

Setting up an organisation to do all of that isn't all that easy, of course. I've written about that particular thorny issue in the past... and if I find a minute in the next few days I'll write about a few new ideas we've been working on with clients.