Clarity Management Consulting

Posts Tagged ‘portfolio management’

The Executive Suite Versus Wall Street

Tuesday, August 24th, 2010

“…you can’t make men work for money alone – you starve  their souls when you try it; and you can starve a company to death the same way” – from the movie “Executive Suite” (1954, Robert Wise, Metro-Goldwyn-Mayer)

I had never seen the movie “Executive Suite” until one day last week when I caught the last few minutes on one of my favorite cable stations. In 1954, this masterpiece of a movie captured the essence of the conflict that many companies still face decades later.

Across industries, strategic decisions in many companies are influenced by concerns about the way Wall Street analysts will interpret them. Corporations have focused on short-term gain in the hopes of affecting share price. Auto manufacturers’ incentives, which are designed to pull sales forward simply to make monthly or quarterly numbers, are but one example of this dilemma.

These observations are reflected in a variety of studies on similar issues. Several papers by Mary J. Benner, Assistant Professor of Management at Wharton, assert that Wall Street analysts are reluctant to embrace the innovative efforts of companies when they are designed to expand their technological horizons. The bias is for extending current offerings as opposed to breaking away from the pack. This is remarkable given the fact that one of the top commandments in marketing is that an entity must differentiate itself from its competitors.

Wall Street analysts, of course, are not to blame for the effect they have on a company’s product decisions. Analysts are constrained by the need to be able to quantify the effect of any given action. As such, they must evaluate every decision in terms of its financial impact, particularly the short-term results. Net present value and payback period are critical financial metrics that must be accounted for, and rightly so. That said, corporations cannot live on near-term success alone. Yet leaders are still rewarded for the current month, quarter, or year despite the fact that their short-term success often comes at the expense of the future.

It is up to the management of every company to settle these matters for themselves. Strategic product moves must reflect a willingness to be true to the corporate mission, vision, and strategy. Ultimately, customers will judge such product choices. If leaders take the easy route and construct product portfolios to match analysts’ expectations, they will likely fail to satisfy customers who are the real arbiters of their success. The commitment to the corporate vision must serve as the counterweight that keeps the desire to please financial markets in its proper context. It has to be the overriding factor if a company is going to enjoy long-term viability beyond the next quarter, the next decade, or the next century.

Want to Transform Your Organization? Look at the Work.

Wednesday, August 11th, 2010

A friend of mine recently initiated a transformation in his physical health. One day he learned that his cholesterol was dangerously high. He realized he had a choice to make. He could take incremental steps and hope for a prolonged period of improvement, or he could make radical changes and improve his condition very quickly. He took charge of the situation. He changed his eating and exercise habits so dramatically that his cholesterol level dropped by 20 points in less than a month.

This story is analogous to the challenges that corporations face daily across the global marketplace. Some have stepped up to the plate and made the radical changes needed to become financially healthy and maintain their viability in the market place. They decided that they wanted to live and not die.

Historically, individual budgetary concerns and department performance have weighed too heavily on work processes in many corporations. This behavior helps organizations optimize at a functional group level, but sub-optimization is the result for the overall entity. If a company is to avoid the iceberg of corporate mortality, then everybody had better start moving the ship – and they better be moving in the same direction. Serving customers and succeeding as an enterprise must drive decisions and, consequently, work flows.

Does your organization reflect the sub-optimization reality? Don’t feel badly – you’re in good company. Where should you start so you can experience your own transformation?  Glad you asked. Keep these two things in mind:

1. Prioritize Carefully

Project portfolio management and prioritization are imperative. No organization can do everything that comes across the radar screen. Your team needs to be allowed to focus on the “critical few” items in order to accomplish its strategic goals. The list of the critical few should be populated with projects that address customer-driven products and services, quality, safety, and compliance. This list should also be limited in scope. Furthermore, items on the list should be important enough to be fully resourced.

2. Eliminate or Reduce Non-Value Added Work

Non-value added work can consume a disproportionate amount of time each day. Tasks that fall into this category typically are driven by departmental requirements, not by the needs of your customers. Figure out how much time your organization spends on activities that serve your customers versus those that only serve the bureaucracy. Empower your organization, and charge them with eliminating or at least reducing the latter.