Companies are initiating projects to support their business strategy by achieving improvements, delivering changes, introducing new products or solving issues that may threaten the whole company existence. Project ideas are collected, assessed and prioritized in a project portfolio with a purpose to bridge company strategy and its execution. Where is the difference between a to-do list of project ideas and balanced portfolio that helps to manage strategic risks?
Every organization has to deal with limited resources and need to decide which projects will be initiated, postponed or even canceled. But how to assign the project funding and other resources to make the best out of the list of the collected project ideas? Several views have to be taken into consideration which makes portfolio management a complex discipline. I don’t aspire to describe all of that but I would like to mention a tool from different area, company growth strategies and product management, and link these together to create inspiration on how to balance a project portfolio.
BCG Matrix is a product portfolio concept formed in 1970 by Bruce D. Henderson for the Boston Consulting Group. BCG Matrix is also referred as Growth Market Share Matrix, tool to support long-term strategic planning by considering growth opportunities and deciding on their funding. The matrix has 4 elements to which are company products assigned. Each of the elements represent a product category and suggest how should the management invest and develop the products to further support company growth.
Over the time, BCG Matrix was criticized for its over-simplification and misuse, mostly due to the misleading wording for the main 4 types of products. I agree, calling products cows and dogs sounds awkward, so I dare to adjust the wording to give the 4 elements a bit more general meaning.
According to the author of BCG Matrix, balanced portfolio should have:
- High-performers whose high share and high growth assure the future. High-performers gather a lot of attention and resources because they are expected to generate major part of company profits.
- Stable products are mature, proved products that will not provide expansion, but are profitable enough to supply funds for the future growth AND
- Opportunities to be converted into High-performers with the added funds
Then there is also Base, products that are sometimes kept just to continue legacy or they may be required by legislation. For instance, regular post services in distant areas are not profitable, but must be provided. BCG product strategy originally suggested that companies may get rid of such products, but later managers concluded that this idea may not be the best.
Just to summarize, BCG product strategy portfolio was developed to provide a guidance how to categorize and structure products to provide support for company growth. Now, when we transfer the original BCG Matrix concept of product strategy in a project portfolio, we may determine project categories by their impact on company strategy:
- Base -> Project category Maintenance: projects that provide maintenance to existing processes and tools, for instance upgrade ERP system to higher version because the current version will be no longer supported. Or process redesign due to the industry regulatory requirements. Maintenance projects are necessary due to changes in external environment, but do not provide outcomes that would directly contribute to achievement of strategic goals.
- Stable products -> Project category Continuous Improvements: projects that deliver changes focused on improvement of the current status and focus on the core business. For instance, process redesign in order to decrease operating costs, integration between two major business systems to provide process automation or update of existing system with new features to provide better user experience. Improvement projects build up on existing company structures and makes them better.
- High-performers -> Project category Extension: projects that deliver changes that do not improve the current state but rather alter it, for instance by implementing new products and new processes. Examples may include building new production line, process digitalization that opens door for new customer services, rebuilding sales channels, partnering with creating new value added by developing key partnerships.
- Opportunities -> Project category Innovation: these are projects that are risky and work best with the “fast fail” approach. Innovation, disruption or adoption of new technologies would be probably their central focus. Innovation projects are aiming at identification and exploration of new revenue streams, aggressive business transformations and ambitious achievements. Companies must be ready to let them fail if there are signs that project would not reach its goals. But at the same time, without innovation the company is in risk by being threatened by more aggressive, disrupting competitors.
By assigning projects to categories related to their impact on company strategy and summing up investment in these projects, we may determine at a glance where is the focus of the company. Regardless how aggressive is the company strategy on paper, the reality is far more reflected in particular changes that the company is decided to undertake.