Rule #2: Go Back And Learn Rule #1

 

As we wrap up October and its theme of Portfolio Management, I’d like to take some time to examine what it is that sets Portfolio Managers apart from other types of managers, and some of the ensuing implications. In last week’s blog I discussed how Portfolio Managers can be expected to be the targets of Asset, Project, and Strategic Managers, all of whom will want to sell their ideas of discipline pre-eminence: the Asset Managers will try to push the notion that all management is purposed towards maximizing shareholder wealth, the PMs will want an emphasis on meeting project performance goals with respect to scope, cost, and schedule, while the Strategic Managers will seek to maximize the organization’s market share. Going back further in time, this blog often takes aim at what I consider to be invalid management practices, notions, and information systems, and the business-decision follies that can (and do) result from their presence within the organization. Now, I want to combine these two notions into a hopefully useful insight that will add clarity to the Portfolio Managers job, if not make it out-and-out easier.

Virtually all Portfolio Managers will be confronted with managers seeking to further their particular discipline’s organizational interest, usually at the expense of others (old conservative axiom: there are no solutions, only trade-offs). When these managers do so with clearly invalid techniques or strategies (and, yes, I’m looking at you risk managers), it’s relatively easy to identify and frustrate these actions. But what happens when the techniques being pushed have been proven to be useful or effective, but they’re being pushed into areas where they lose this effectiveness?

The Significance of St. Crispin’s Day

This past Wednesday was the 602^nd anniversary of the Battle of Agincourt, where Henry V of England and his army of approximately 7000 were intercepted by a French army of over 30,000 in a field bounded on both sides by thick woods. Dating from even before the Battle of Cannae in 216 BC, numerically superior armies had great success by encircling their opponents, and attacking from all sides, particularly if the attacking forces had superior mobility (e.g., cavalry units available). But this technique was unavailable to the French, since the field of battle was relatively narrow and, as previously mentioned, bounded by forest. Even without the envelopment tactic available to them, the French were confident of victory, since not only did they outnumber the English, but their armor was superior as well. Unfortunately for the French, the field of battle had been recently ploughed, and it rained heavily the night before. By the time the vanguards of the two armies were within weapons range of each other, the French knights, wearing around 60 lbs. of armor, were exhausted and sinking into the mud, making them easy targets for the lightly (if at all) armored English longbow archers. The ensuing fighting resulted in an astonishingly lopsided victory for the English.

As the martial equivalent of Portfolio Managers, the French leadership (Charles d’Albret) was, no doubt, thoroughly familiar with the traditional tactics of advancing his goals, in this case envelopment, or simply overwhelming the opponent with superior arms and armor. But 602 years ago those two techniques, as successful as they were in many other occasions, were not only ineffective, but disastrous for the superior French forces. The conditions on the day of battle had changed so significantly that the familiar strategies would have had to have been abandoned if there was to be any hope of victory, either by retreating to a place large enough for envelopment, or arranging to fight on more solid ground, or both.

Meanwhile, back at the Portfolio Management Program Office

Managerial advisors and their Management Information Systems (MISs) are thoroughly familiar with the traditional techniques and strategies that will allow the organization to advance on its overarching goals. The challenge for the Portfolio Manager is to quickly and accurately identify those situations where the traditional techniques do not work, and those advising their use must be ignored. In short, rule number one for the Portfolio Manager is to question every tactic, technique, or strategy that they’ve been taught will work in most (or all) managerial situations, and be prepared to abandon such approaches when the situation merits it. And rule number two: even rule number one should be questioned, from time to time.

This is why those executives who seek to fulfill the role of Portfolio Manager, but can’t be convinced to alter their technical approach to management problems, will almost always represent one of the greatest threats to the overall success of the organization. If they can’t recognize their own moribund, staid, and pathology-ridden techniques and eliminate them, how can they be expected to do the same with the other types of management?