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Casual Articles - Can Finance Really Become a Strategic Partner to the Business?
Several times during the Broadway show that won the Tony Award for Best Musical in 1991, an actor seated with the audience stands up and blurts out in a cheerful voice, “Let’s go flyin’ Will.” On stage, Keith Carradine, portraying the lead character in “The Will Rogers Follies” replies, “Not yet, Wiley,” delaying the ending everyone knows is coming, in which the legendary humorist perished in a plane crash with aviation pioneer Wiley Post in Alaska.Will Rogers was born on November 4, 1879, in Indian Territory of what would become Oklahoma. From his early years as a trick roper in wild west shows, to Vaudeville theater and The Ziegfield Follies, to being the highest paid actor in Hollywood, Rogers became one of the most-recognized figures in the nation. At the time of his death, his weekly syndicated newspaper column reached 40 million Americans – one-third of the entire population. Today, 70 years later, Rogers’ folksy humor is still relevant:On politics: “I don’t make jokes. I just watch the government and report the facts.”On the media: “All I know is just what I read in the papers, and that’s an alibi for my ignorance.”On celebrities: “I’m not a real movie star. I still got the same wife I started out with 28 years ago.”On gover
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expen
Your approach to marketing may be what I call the ‘Grudge Approach’. You know in your heart of hearts that you need to do it, but you object to it, almost in principle, and you begrudge the time and effort it will take. So you don’t market your practice at all, or at best you put together a rather hastily planned and non-effective leaflet every few years, and when that doesn’t bring in any clients you say, “There, marketing just isn’t effective.”I know what the Grudge Approach to marketing is all about, because I was an expert practitioner of it for many years!So the first step is to change your mindset about marketing. The first step – as so often in complementary medicine, as well as in life – must come from within.Ditch the false and self-limiting belief that marketing is somehow unprofessional, dirty (it’s to do with money!), self-advancing, even unethical. This complex of beliefs lies behind a lot of the difficulties that practitioners have with marketing their practices.After all, what is marketing? It’s not about making money. The dictionary definition is “the provision of goods or services to meet customer or consumer needs” (Collins English Dictionary). And isn’t that what we are in business as therapists for? To meet our clients
Given the time, money and effort spent, you may be a bit demoralized and even speculating that the finance-business chasm cannot be crossed. Paradoxically, the link between finance and the business has been under finance's proverbial nose for some time - resource allocation. A serious concerted effort to optimize an organization's resource allocation ultimately enables finance to develop the bridge between finance and strategy. This discipline known as corporate portfolio management works to actively manage the company's resource allocation as a portfolio of discretionary investments. All companies allocate their resources - very few optimize their resource allocation. Finance is uniquely positioned to enable this because they sit at the nexus of information and data required to undertake a corporate portfolio management effort. (Note: Corporate portfolio management is often referred to by different terms so as a point of reference, terms such as IT portfolio management, enterprise portfolio management, product portfolio management, project portfolio management, resource allocation and investment optimization are similar. In fact, these all are slices or subsets of corporate portfolio management.)
From Resource Allocation to Strategy
First, it is worth understanding the tie between resource allocation and strategy - they are the same. Where you allocate your resources is your strategy. PowerPoint presentations, speeches by senior leadership, strategy bullets nicely framed on a wall, etc. are all interesting and potentially useful, but they are not your organization's strategy. For instance, if your stated corporate strategy is to have the most engaged and loyal customers (this sounds good, right?), but you allocate all your investment dollars to acquiring new customers, your strategy is actually around customer acquisition. This is a very simple example but clearly demonstrates the dichotomy that can and often exists between a stated and real strategy.
A great article entitled "How Managers' Everyday Decisions Create - or Destroy - Your Company's Strategy" that recently appeared in the Harvard Business Review (February 2007) nicely articulated the connection between resource allocation and strategy and also pointed to the need for a corporate portfolio management discipline. "How business really gets done has little connection to the strategy developed at corporate headquarters. Rather, strategy is crafted, step by step, as managers at all levels of a company - be it a small firm or a large multinational - commit resources to policies, programs, people and facilities. Because this is true, senior management might consider focusing less attention on thinking through the company's formal strategy and more attention on the processes by which the company allocates resources."
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expend
In this day and age, as job competition has increased, interviewing techniques have also gotten tougher. Larger corporations often adopt multi-layered interview techniques from initial screening until the job offer stage.Interview Styles and How to Handle Them ConfidentlyThe need for different interview styles has evolved with the increasing complexities of jobs and work environments, as a scientific means to testing candidates.Behavioral InterviewThis style of interview uses the premise that past behavioral and performance history reveals enough indicators for a prediction of future performance. This type of interview can begin with concealed questions, such as asking you to narrate a tricky situation you have handled in the past. For example, "Please let us know your best accomplishment and how you were able to accomplish it." However, the questions will not necessarily be limited to your past. Look at this one: "If you had to purchase accounting software, how would you choose it?" This question aims at bringing out your software knowledge, as well as the decision making process that you may use.Case StudyA slightly refined technique within the behavioral interview is the case study style. Expect to en
From Resource Allocation to Strategy
First, it is worth understanding the tie between resource allocation and strategy - they are the same. Where you allocate your resources is your strategy. PowerPoint presentations, speeches by senior leadership, strategy bullets nicely framed on a wall, etc. are all interesting and potentially useful, but they are not your organization's strategy. For instance, if your stated corporate strategy is to have the most engaged and loyal customers (this sounds good, right?), but you allocate all your investment dollars to acquiring new customers, your strategy is actually around customer acquisition. This is a very simple example but clearly demonstrates the dichotomy that can and often exists between a stated and real strategy.
A great article entitled "How Managers' Everyday Decisions Create - or Destroy - Your Company's Strategy" that recently appeared in the Harvard Business Review (February 2007) nicely articulated the connection between resource allocation and strategy and also pointed to the need for a corporate portfolio management discipline. "How business really gets done has little connection to the strategy developed at corporate headquarters. Rather, strategy is crafted, step by step, as managers at all levels of a company - be it a small firm or a large multinational - commit resources to policies, programs, people and facilities. Because this is true, senior management might consider focusing less attention on thinking through the company's formal strategy and more attention on the processes by which the company allocates resources."
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expen
I have a major secret to success…Not just success in the self-storage business. Not just the secret to financial success. But the secret to success in every area of our human lives. And – as you’ve probably guessed - I’m going to reveal it in this article.But before I do, I want to warn you that it will appear extremely simple at first glance. In fact, you’ve probably heard it a few times before. You’ll probably read it, your brain will translate a meaning to you based on your background or previous experiences and you might completely miss the relevance of this secret.So, before I tell you what it is, I would like you to commit, right now, that you’ll read it, re-read it and re-read it again. Then think about it before continuing.Okay, here it is:Make people offers they can’t refuse!Simple enough right? Maybe, depending on how you think about it. Allow me to expand that thought to help you understand the point I’m trying to make.See, our life is spent making offers to people and considering offers presented to us. We must offer something to somebody before they’ll hire, date, marry or befriend us. And, we must make our offers irresistible. Offers so strong that the person would feel foolish for not taking
From Resource Allocation to Strategy
First, it is worth understanding the tie between resource allocation and strategy - they are the same. Where you allocate your resources is your strategy. PowerPoint presentations, speeches by senior leadership, strategy bullets nicely framed on a wall, etc. are all interesting and potentially useful, but they are not your organization's strategy. For instance, if your stated corporate strategy is to have the most engaged and loyal customers (this sounds good, right?), but you allocate all your investment dollars to acquiring new customers, your strategy is actually around customer acquisition. This is a very simple example but clearly demonstrates the dichotomy that can and often exists between a stated and real strategy.
A great article entitled "How Managers' Everyday Decisions Create - or Destroy - Your Company's Strategy" that recently appeared in the Harvard Business Review (February 2007) nicely articulated the connection between resource allocation and strategy and also pointed to the need for a corporate portfolio management discipline. "How business really gets done has little connection to the strategy developed at corporate headquarters. Rather, strategy is crafted, step by step, as managers at all levels of a company - be it a small firm or a large multinational - commit resources to policies, programs, people and facilities. Because this is true, senior management might consider focusing less attention on thinking through the company's formal strategy and more attention on the processes by which the company allocates resources."
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expen
Business management spends billions of dollars in corporate training and education. According to a report released in early 2006, the U.S. corporate education and training market exceeded $46 billion. Additionally, business management and leadership training captured the largest percentage of program dollars with developing new and existing management along with succession planning. (Source: Bersin & Associates)With training budgets increasing and the additional focus on leadership and management development because people do not leave organizations they leave managers, achieving higher levels of positive return on investment (ROI) makes sense. Research supports that to increase training ROI begins by including coaching as an effective tactic.In a 2001 study completed by Dr. Merrill Anderson, of MetrixGlobal, for a Fortune 500 company coaching can produce a 529 per cent ROI. Additional studies since that time confirm the positive affect of coaching. Business management executives are now employing a new learning strategy that combines education and training with coaching. This is initiative is corporate coaching. So what is corporate coaching?Simply speaking,
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expen
Over the years, several CEOs have asked me how I would go about getting departments of their organizations to support the vision we created in the strategic planning process. To begin with, it's important to recognize that this is a good idea: any department in your organization can either support your strategy by being aligned with it, or block your strategy by pushing against it. To see how, let's take a look at how several different departments might affect strategy. Purchasing — In many purchasing departments, performance is measured strictly by how well the department cuts costs. This is clearly useful for a company that is pursuing commodity customers, but it can be highly counterproductive when your target customer is a specialty buyer. The problem of measuring other values — such as the impact the purchase has on our operations or on our customers — sometimes makes purchasing a difficult department to align with the organization's strategy. Accounting — Accounting typically gives the company a way of measuring performance (financially) after the fact, as well as managing cash flow and, usually, budgeting. Some accounting departments also focus a good deal of effort on cost measurement and management. Naturally, the measurements that com
The upshot of this is that if finance can enable the process to enable better resource allocation (which is strategy), they will have succeeded in becoming a de facto strategic partner to the business.
The Two Levers of Corporate Portfolio Management
So now the question turns to how to build a corporate portfolio management discipline and ensure its success. A successful corporate portfolio management effort is predicated on two dimensions.
1. Modern Portfolio Theory (aka the process) - This is what people generally think of when they think of corporate portfolio management. It is comprised of:
* Investment valuation - This includes defining what an investment is. It is worthwhile to take an expansive definition of what comprises an investment because this is not just capital expenditures (capex), but also should include operating expenses (opex). In general, 25-40% of an organization's expenses are discretionary and hence are investments. Investment valuation also requires consistency of valuation methodology which necessitates using driver-based models to create projections and also looking at past NPVs and ROIs to consider strategy and other qualitative aspects that drive investment 'value'.
* Portfolio allocation - This requires determining investment areas/themes and the associated allocations. Basically, what are my strategic priorities for investment and how much will go to each area? For example, 25% in customer acquisition, 20% in IT, 55% in customer retention. The allocation should also consider the risk profile of investments, e.g., 60% in low risk, 30% in medium risk and 10% in high risk.
* Portfolio optimization - This requires selecting the best investments to support the portfolio allocation and periodically rebalancing the portfolio to ensure consistency with desired portfolio allocations. The aim is to maximize strategic and financial return per unit of risk.
* Performance measurement - A key element of successful corporate portfolio management is capturing actual investment results to enable promise vs. performance. Doing this ultimately lets an organization improve ongoing investment valuation based on actual results and allows it to rebalance the portfolio based on performance achieved.
Most people with a finance background will recognize the above tenets of portfolio theory. The problem with most of the discussion of corporate portfolio management is that it assumes that people behave according to a theoretical/rational construct. While various experts like to offer platitudes saying things like, "Just manage your company's investments like you manage your own investments," they fail to realize that many individuals may not even manage their own personal portfolios as they should. They may know what they should do but emotions, intuition, and other external influences take them off this rational path. What often leads us astray in our personal portfolio is what leads us astray in an organizational setting - behavior. The challenge in an organization is magnified by the fact that it is hundreds or thousands of people whose behavior that needs to be considered. And so this is the second fundamental lever of corporate portfolio management - organizational behavior.
2. Organizational Behavior - In order to optimize one's corporate portfolio, the behavioral elements must be understood with:
o A data-driven mindset - Organizations often make decibel- or intuition-led decisions and corporate portfolio management, like 6-Sigma, requires data and analytical decision making.
o Silos removed - Corporate portfolio management success requires people thinking about what is best for the organization and not just what is best for "my world" - silos and organizational dynasties need to be broken down.
o Incentive alignment - People should be motivated by similar short- and long-term incentives.
o Accountability & transparency - There should be a willingness to share information and effectively create a marketplace for investments.
Moving organizational behavior is the larger challenge and this takes time to change. At American Express, we have actively worked on changing organizational behavior and have made significant inroads over time, but it has not happened overnigh
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