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Case study – Corporate Portfolio Management

A UK subsidiary of a global manufacturer had experienced 7 years of declining revenue and margins. The newly appointed Managing Director recognised there needed to be a fresh approach to re-establish profitable growth.

The organisation, made up of a number of diverse business units, with a combined revenue of $800m, was undgoing a transition from a division-led to market-led business model. During this period the European head office introduced a cap on headcount (employees) which was a further factor constraining potential growth.

With hundreds of existing change initiatives already underway and multiple, often conflicting objectives, the challenge faced by the incoming Managing Director was highly complex.

Key questions that needed to be answered were:

• Which projects will generate the best return and should therefore be resourced?
• Which projects generate a poor return and should therefore be killed or put on hold?
• What level of investment is needed to fully resource the attractive projects so they can achieve their full potential?
• Which ‘core’ businesses should release resources to invest in growth projects?

To help answer these questions a new initiative was introduced to implement an organisation-wide corporate portfolio management process.

Initially each business unit created a portfolio of existing projects, and new growth projects, using individual business cases that described both the cost and the benefit of each project. A cross section of stakeholders from the business unit used decision conferencing to determine the best combination of projects (both existing and new) that would deliver the greatest value-for-money based on the corporate objectives. These business unit portfolios were then combined into one overall portfolio. A range of stakeholders, representing each of the business units, came together to make the final decision on allocating resources. Their task was to optimise the portfolio and produce the 5 year plan.

The portfolio management process was described by the UK Board as:

• A planning process with a clear path to actions and implementation
• A real tool to define where to invest and the expected returns
• The foundation for the external business environment and help in understanding our key risks and challenges
• It defines and enables agreement to the financial targets that we are all prepared to commit to
• It reflects the division and regional view of the world
• It provides a comparative assessment of the market segments and opportunities and realigns resources as appropriate

The portfolio management process helped to more effectively align resources with the stated corporate objectives and through this focused portfolio approach breakthrough results were achieved.

Some of the outcomes achieved at the end of the first 12 months were:

• 50 existing changes had been stopped
• Key changes were properly resourced to address the market opportunity
• A reduction in overall headcount initially, but an increase in headcount for some businesses
• Growth in sales & growth in margin
• The organisation was more fully aligned with the UK strategy
• Better joined-up strategic thinking at global, regional and country levels

What was achieved in the first 3 years?

• Increase in shareholder value of $1.2bn
• Portfolio management process incorporating all segments, businesses and other (back-office) functions
• The UK earned the right to focus and invest in growth opportunities (Global and Local)
• Growth and savings discussions created new perspectives and challenged constraints.
• A team that are now thinking more strategically rather than operationally.