Apply Relevant Investment Criteria

Depending on the structure of a company’s investment portfolio, decision makers may need to apply different criteria in order to highlight differences in the value drivers of various investment types. For example, a strict focus on internal rate of return and payback time may systematically favor incremental improvement investments at the expense of larger breakthrough investments that tend to have longer-term and uncertain payoffs.

The process … [ Read more ]

Go Beyond Internal Rate of Return

In theory, there is a simple rule for choosing among competing investment projects: sort the list of projects based on their expected internal rate of return and select those with the highest IRRs until the budget is fully committed. In practice, however, the effectiveness of this approach is constrained by the quality of the assumptions that go into the valuations and by the influence of … [ Read more ]

Translate Portfolio Roles Into Capital Allocation Guidelines

One of our clients, an international energy company, which classifies business units as development, growth, anchor, or harvesting businesses, depending on their position in the market life cycle. Each portfolio role has its own performance requirements, and businesses are managed based on specific sets of financial indicators. More important, the role of each business determines its guidelines for capital allocation. For example, coal power generation … [ Read more ]

Learning to Say No: The MSPOT

The single best tool I have found to help unlearn the yes-man ways of a startup CEO is a single-page document we call our MSPOT. With it, we articulate our Mission, the constituencies we Serve, the Plays we’re going to run this year, the plays we are going to Omit, and how we will Track our progress.

The most painful portion of that document are the … [ Read more ]

Build a Fact-Base and Search for Strategic Options

By determining where, how, and why value is created and destroyed within each business unit, managers can typically uncover opportunities to double the value of their business units within two to three years. To accomplish this feat, management must identify which customer segments are most profitable, which product and service features are most important to meeting the needs of customers in these segments, and which … [ Read more ]

Getting a Fresh Look at Your Products and Services

Every three months, a group of people from the organization—younger people, junior people, but never the same people—sits down and looks at one segment of the company’s products, or services, or process or policies with a question: If we didn’t do this already, would we go into it the way we are now? Every four or five years, that company has systematically abandoned or at … [ Read more ]

Private-Equity Exercise

A useful exercise is to think about the value agenda as though a private-equity firm had just bought your company. What would you be working on if you were trying to triple your value in five years? Answering that question in a really finite way, with dollar values next to ideas and initiatives, is a really good thing to do.

Surveying Your Employees about Your Strategy

Involve a larger part of the organization in a discussion on how the company is doing on strategy and execution. Like the annual employee survey, organizations should take the pulse around the most important strategic topics. Such a survey provides powerful insights about how well your employees — the people who know the company best — think it is positioned for success, how well they … [ Read more ]

Kill the Company

“Kill the Company” is an exercise which asks participants to step into their competitors’ shoes and think up a detailed strategy aimed at driving their own company out of business. This is achieved by encouraging people to identify weaknesses in their company — or their business unit or division — and show how a savvy competitor could exploit them. The most useful insights surface when … [ Read more ]

Kill the Company: Identify Your Weaknesses Before Your Competitors Do

Kill the Company is about having an out-of-company experience. It’s about examining your weaknesses so that you can make them your strengths. In most businesses each year, we do a SWOT analysis [to examine] our strengths, weaknesses, opportunities and threats. Most people use it as a political construct to say where they are strong and [to say that] they are not really weak — … [ Read more ]

Ensuring Investment Discipline

Rio Tinto institutes checks and balances to manage internal lobbying. We have something called the Investment Committee, which approves sizable investments of any kind and consists of the CEO, CFO, the head of technology and innovation, and the head of business services. In other words, it does not contain any of the divisional heads. The plan is that this committee has enough data to have … [ Read more ]

Combine Strategy Development with Capital Allocation

When Halliburton Energy Services Group, a leading oil field services company, revamped its strategic planning process, senior managers decided that these two processes were in fact one and they designed their strategic planning accordingly. Halliburton now has one owner of strategy and capital allocation, with clear accountability for ensuring alignment between the two. This senior manager owns the corporate-wide strategic managing process and chairs a … [ Read more ]

Getting Strategic Clarity

Too often we find firms with more strategic clutter than clarity. Leaders in these firms have become enamored of the latest strategy twist and continually articulate a new way to position the firm. Nonetheless, it is possible to develop or enhance the required clarity. In one company, a newly appointed leader asked each of his direct reports to answer the question “What are we doing … [ Read more ]

Smart Bombing

One suggestion is to start with an exercise that is well labeled “Smart Bombing.” Analyze your company. What would you do if you were your closest competitor looking to attack your own company? Put yourself in your competitors’ position and think about how they might try to counter or off-set your advantages in the market place. Where are you possibly vulnerable?

Have your sales and … [ Read more ]

Surfacing Critical Issues

Most companies are accustomed to identifying major internal issues, such as whether to build a business, divest an asset, or lay off people. What’s harder is the early surfacing of opportunities and threats arising out of external events such as dramatic shifts in demand, competitive behavior, industry structure, regulation, or the macroeconomic environment.

A commonsense approach to identifying such issues early is to poll, regularly, all … [ Read more ]

Use action learning projects to address current policy or strategy issues

What’s the secret for building enduring client relationships? How do you make these relationships the cornerstone of your company’s reputation in the eyes of employees and investors as well as clients? And how do you avoid being overtaken and marginalized by shifting competitive forces to consistently offer superior value to clients? My answer…consists of five precepts or pillars: Surround yourself with good people. Invest in … [ Read more ]