TALKING TO WALL STREET
The executive team of a mid-sized corporation with a track record of successful growth, low debt and strong cash flow wanted to expand the company’s asset portfolio to get exposure to higher-risk, high-return opportunities while remaining financially conservative.
Before announcing its goals to Wall Street, senior management worked with Portfolio Decisions to modify its strategy from a portfolio perspective, improving chances of success and avoiding an overcommitment to the investment community. A key step was illustrating to the board of directors the business impact of several kinds of new investments the company might make.
Portfolio Decisions was able to illustrate several different ways to accommodate the company’s “grow and be profitable” philosophy using different asset mixes.
IMPROVING CORPORATE PLANNING
A U.S.-based company with worldwide operations had experienced mediocre financial performance as a result of multiple project failures. One reason: project investment decisions were made on a case by case basis – based on technical merits alone, rather than from a portfolio perspective.
As part of an internal organizational redesign, company executives decided to introduce project portfolio management in corporate planning and investment evaluation. Working with the executive vice president appointed to lead this transition, Portfolio Decisions helped lay the groundwork to integrate portfolio management in the decision-making process. This groundwork included helping the executive in charge to focus more on the business impact of investments.
In addition, the company’s planning team was coached on the information to be developed and presented in meetings with the executive committee, and how to structure the meetings to be more productive. Portfolio Decisions built the initial portfolio model and trained staff on how to analyze options and scenarios. Portfolio Decisions also helped them modify their approach to data collection to reduce the burden on the operating units while still achieving acceptable data to support the analysis.
As a result, management began considering the entire 15-year planning horizon where most of the growth could be realized, rather than just the traditional 3-year budget cycle. Almost immediately, specific projects were stopped in favor of others that showed more promise. The contribution of business units was clarified and communicated. They appreciated receiving a clearer picture of what they were expected to deliver.
REALLOCATING RESOURCES
Portfolio Decisions, Inc. worked closely with an international company in evaluating the applicability of a portfolio based decision approach. Once it was determined that the company could benefit from these methods, Portfolio Decisions, Inc. assisted in the design of an implementation strategy consistent with its business processes and in the initiation of a company-wide effort to make portfolio management a major component of their annual planning cycle.
This involved the generation of a corporate level portfolio model that captured a large percentage of the known opportunities at each of the individual business segments. Portfolio Decisions, Inc. heavily supported preliminary modeling and analyses, with training focused on developing a core group within the company capable of portfolio analysis on an ongoing basis. The insights gained by the initial portfolio modeling work were used by the board of directors in evaluating the operational strategy for the company. The probability of meeting specific portfolio objectives has become a key component of the strategic planning and budgeting processes at the organization. This has allowed the company to focus their efforts on key value drivers and shift resources from non-value adding areas to areas with the greatest impact to company performance.
MOVING BEYOND PROJECT-BY-PROJECT DECISIONS
A U.S. corporation operating in North America, South America and Asia had achieved considerable success and growth based largely on the president’s intuition-driven business decisions. The president realized, however, this approach would become less effective as the company grew. Also, projections indicated a large increase in cash flow during the next five years, which the company needed to reinvest wisely in order to meet increasing shareholder expectations.
Portfolio Decisions modeled the business from a portfolio view to help management explore different scenarios with a variety of specific business goals. Concurrently, Portfolio Decisions provided analysis training for planning staff and background sessions for middle management and data staff.
As a result, management developed more concrete long-term goals to better prioritize capital allocation. Using portfolio management, the management team moved away from project-by-project based approvals to manage the new complexities more effectively.
IMPROVED GUIDANCE FOR ACQUISITIONS
An international conglomerate was concerned about making a major acquisition and meeting previously established market expectations. While the company was already using portfolio management, its management was concerned with the magnitude of potential downside risk. Plus, a critical event that would determine the success of the acquisition was three years in the future and not in the company’s control.
Portfolio Decisions worked with management to incorporate more sophisticated risking information, allowing them to explore the business performance impact of failure. Portfolio Decisions also helped them understand how to develop alternate investment scenarios to mitigate the risk. The mitigation strategy was implemented immediately, significantly reducing downside exposure.