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Portfolio Rationalization - Making Sound Financial and Strategic Decisions in Times of Uncertainty

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This presentation outlines a methodology and set of frameworks useful for making strategic product portfolio rationalization decisions in times of uncertainty intelligently and quickly (rapid vs. rushed) regardless of organization size.

Additionally, we provide thoughts and ideas around the current emergent state of the world & market due to COVID-19 and how organizations can effectively navigate through three key phases.

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Portfolio Rationalization - Making Sound Financial and Strategic Decisions in Times of Uncertainty

  1. 1. PORTFOLIO RATIONALIZATION MAKING SOUND FINANCIAL AND STRATEGIC DECISIONS FOR INVESTMENT AND OPERATIONAL EXPENSES IN TIMES OF UNCERTAINTY April 2020
  2. 2. © Pariveda Solutions. Confidential & Proprietary 1. Outline a methodology and set of frameworks useful for making strategic portfolio rationalization decisions intelligently and quickly (rapid vs. rushed) regardless of organization size. 2. Provide thoughts and ideas around how organizations can plot a three-stage course to navigate through the uncertainty stemming from COVID-19. Contents This is a discussion document aiming to provide a mechanism … for mitigating risk during a period of crisis or uncertainty, … while still allowing the organization to capitalize on potential upside when the crisis is over. The methodology and frameworks contained in this document are intended to help augment existing processes, not replace them. Pariveda can assist by … adapting the methodology to each organizations’ particularities, … performing analyses and ensuring objectivity, and … facilitate rapid decision-making Considerations Document Overview 2
  3. 3. 3 1. METHODOLOGY PORTFOLIO RATIONALIZATION MAKING SOUND FINANCIAL AND STRATEGIC DECISIONS FOR INVESTMENT AND OPERATIONAL EXPENSES IN TIMES OF UNCERTAINTY
  4. 4. © Pariveda Solutions. Confidential & Proprietary Cost Management Cycle Model As organizations look to shepherd their near-term costs, they must consider the cashflow behaviors throughout the Cost Management Cycle As organizations attempt to serve their customers, they create internal and external Products that are created through Projects and require ongoing Operating Expenditures to support over time. Each component of the Cost Management Cycle requires a level of capital investment and ongoing cash-flow outlay that must be understood in relation to the current macro-situation in order to create intelligent Portfolio decisions. Managing the Cost Management Cycle Cost Management Cycle Projects Ongoing efforts that have a start date, end date, objectives, and a budget. Can be delayed, reduced, or cancelled. 4
  5. 5. © Pariveda Solutions. Confidential & Proprietary Portfolio Rationalization Maturity Framework (Time vs. Sophistication) An effective portfolio rationalization approach depends on (a) available time and (b) level of sophistication required to make sound decisions Qualitative assessment of most projects / investments Available Time until a decision needs to be made Levelofsophistication neededfordecisionmaking Investments are approved as long as they are within budget Projects are only re- evaluated when a problem situation rises No project management guidelines are defined or followed Investments are approved on an individual basis Projects are not systematically tracked Basic cash-flow analysis Qualitative assessment of non-financial factors, e.g., as strat. alignment & risk Projects are re-evaluated on progress and budget Project management guidelines are defined but not strictly enforced Investments are approved on a collective basis in executive meetings Projects are systematically tracked Cash-flow analysis and sensitivity analysis Projects prioritized on quant. & qual. Scores, and portfolio synergies Projects are re-evaluated on progress, budget, and business relevance Program office promotes portfolio management practices Investments are periodically re-evaluated Red-flags are pre-defined based on internal and external criteria Organizations who can ”shift left” and perform effective portfolio analysis quickly, but consistently, in times of uncertainty increase their chances of survival and ability to capitalize on opportunities later How can we get these results faster? Fast & Thoughtful over Rushed Rapid Organizations who view lack of time – or macro turbulence – as a reason to discount their decision-making standards may (or may not) realize short-term benefits, but in the long term they pay the price of reduced sophistication When facing pressures, good organizations make Rapid (not Rushed) decisions 5
  6. 6. © Pariveda Solutions. Confidential & Proprietary Recommended Approach [1] Workshops or other fast-disposition methods [2] Detailed analysis, which becomes an input to the organization’s normal portfolio prioritization mechanism [3] Dimensions adjusted based on organization, and should include the organization’s existing portfolio analysis frameworks We recommend a three-step approach to rationalizing portfolios that enables informed and timely decisions with “enough” analysis N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams 1. Identify projects you can’t touch (map projects by portfolio category) 2. Identify projects you must not stop (map projects by strategic objective) 3. Score remaining projects across quantitative and qualitative dimensions[3] Can’t touch these (continue funding) Must not stop these; continue current level of funding Must not stop these; opportunity to optimize costs Rapidly pass through steps 1 and 2 [1]; then do “enough” analysis for the remaining projects in step 3 [2] 6 Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV
  7. 7. © Pariveda Solutions. Confidential & Proprietary N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV Portfolio Mapping Matrix 1. Identify projects you can’t touch: Definitions and examples N/A TransformGrow Discretionary Run Mandatory Examples ▪ Existing regulatory requirements ▪ Cybersecurity ▪ Quality assurance functions ▪ Payment systems ▪ Internet and mobile presence / commerce Efforts that cannot be avoided or deferred and affect current operations Examples ▪ New regulatory requirements ▪ Production alignment to backlog of orders ▪ Implementing agreed initiatives with partners Efforts that cannot be avoided or deferred and affect future operations Examples ▪ Replacement of end-of-life systems ▪ End-user technology refresh ▪ Cost Reduction Projects ▪ Organizational improvements and sizing ▪ Realization of synergies across LoBs / subsidiaries Efforts organizations are choosing to execute to benefit existing operations Examples ▪ Operational alignment of distribution channels (e.g. add branches to a common platform) ▪ Incentives’ optimization ▪ Cloud Migration ▪ Business process reengineering Efforts organizations are choosing to execute to benefit future operations Examples ▪ Expansion into new customer segments, new geographies, new products ▪ Mergers and acquisitions ▪ Data & Analytics, Business Intelligence ▪ Artificial intelligence, Machine learning ▪ Process automation Efforts organizations are attempting in order to grow into adjacencies which may require changes in their operating model 7 N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV
  8. 8. © Pariveda Solutions. Confidential & Proprietary Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Strategic Portfolio Mapping Source: Business Model Canvas 2. Identify projects you must not stop: Definitions and examples Projects to become more efficient and maximize synergies with suppliers Projects to realize operational efficiencies Projects to gain more value from the company’s resources (including human) Projects that minimize costs or gain the highest possible returns from spend Projects to increase the value proposition to customers (B2B & B2C) Projects to enable increase in customer attraction and loyalty Projects to improve distribution channels efficiency & effectiveness Projects that allow organizations to reach additional customer segments ▪ Evaluation of supplier contracts and procurement practices ▪ Strategic Partner Network ▪ Vertical integration ▪ Virtual Best Practices ▪ Talent Strategy ▪ Organizational alignment and sizing ▪ Product portfolio optimization ▪ New product development ▪ Incentives (e.g. bundling) ▪ Customer Experience (from non-customer, to current- customer, to past-customer) ▪ Business process reengineering ▪ Cloud Cost Takeout ▪ Cross-BU synergies ▪ Collaboration systems ▪ Operational consistency among distribution channels ▪ Channel / customer-segment alignment ▪ Cross-selling ▪ Cost Takeout ▪ Automation ▪ Funding review / restructuring ▪ Loyalty systems ▪ Marketing effectiveness ▪ Omni-channel ▪ Personalization / micro- segmentation ▪ Data & Analytics ▪ Life-time customer value ▪ New customer segments Projects that maximize revenue from existing and new channels ▪ Pricing strategies ▪ New geographies ▪ Inorganic growth ▪ Best-practice sharing 8 N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV
  9. 9. © Pariveda Solutions. Confidential & Proprietary Definitions and factors for multi-dimensional analysis 3. Score remaining projects across quantitative and qualitative dimensions: Definitions and factors Net Present Value definition Technical Architecture factorsStrategic Value factors Suitability factors Risk factors Non-Financial Benefit factors Payback Period definition ▪ The discounted annual free cashflows (upside - cost) for the time-horizon from the initial investment all the way to several years after breaking even ▪ Maintainability: Level of effort required to keep the solution running ▪ Flexibility: Ability to accommodate additional business processes or changes in required functionality ▪ Scalability: Ability to support additional users while meeting quality of service standards ▪ Interoperability: Ability to interact effectively with other systems ▪ Security: Ability to prevent unauthorized disclosure, loss, modification, use of its data or functionality ▪ Compatibility: Conformance with existing and emerging internal and external standards ▪ New products: The project allows us to create new products ▪ New customers : The project allows us to address new customers or increase the share of wallet of existing customers ▪ New geographies: The project allows us to enter new geographies ▪ New partnerships: The project allows us to realize synergies with new partners or increase the synergies with existing partners ▪ Functionality: Project’s ability to deliver its required capabilities ▪ Usability: Benefit in end-user’s productivity when working wat steady-state after project’s completion ▪ Market risk: The market changes preferences before the payback horizon ▪ Project delivery risk: The project doesn’t get delivered on time / within budget / within requirements ▪ Operational risk: The business operations are not mature enough to realize the project’s benefits as planned ▪ Creates competitive advantage or responds to competitive threat ▪ Improves customer satisfaction ▪ Improves company image ▪ Provides future strategic option or improves future readiness ▪ Improved quality or security of operations ▪ Improved management information ▪ Improved information and knowledge exchange within or outside of Printec ▪ Technical Necessity (security, transaction volume) ▪ Pre-requisite for other investments ▪ The time it takes for the cumulative value of the upside to equal the cumulative value of the investment (CapEx and OpEx) Potential dispositions Continue funding Defer/Decrease Funding Or Fundamentally Rethink For Discussion and/or Adapt to current situation 9 N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV N/A RUN GROW TRANSFORM MANDATORYDISCRETIONARY Key Partners Key Activities Value Propositions Customer Relationships Customer Segments Key Resources Channels Cost Structure Revenue Streams Can’t touch these (continue funding) Must not stop these; continuecurrent level of funding Must not stop these; opportunityto optimize costs Strategic Value Risk Size = $ NPV Payback Period NetPresentValue Size = $ Cost Non-Financial Benefit NetPresentValue Size = $ Cost Technical Architecture Suitability Size = $ NPV
  10. 10. 2. ORGANIZATIONAL AGILITY MINDSET, SKILLSET, TOOLSET BEST PRACTICES FOR NAVIGATING THE COVID-19 CRISIS 10
  11. 11. © Pariveda Solutions. Confidential & Proprietary11
  12. 12. © Pariveda Solutions. Confidential & Proprietary COMPLEX Probe – Sense – Respond COMPLICATED Sense – Analyze – Respond CHAOTIC Act – Sense – Respond OBVIOUS Sense – Categorize – Respond Cynefin framework As business leaders shift from the Chaotic to the Complex Domain, they must discern a path forward based on emerging patterns and new inputs Work-from-home transition & Remote effectiveness Cash stewardship & Portfolio rationalization “Leaders who try to impose order in a complex context will fail, but those who set the stage, step back a bit, allow patterns to emerge, and determine which ones are desirable will succeed.” -David Snowden (HBR) 12
  13. 13. © Pariveda Solutions. Confidential & Proprietary Organizational agility framework Source: Donald Sull, “The Upside of Turbulence” Organizations must make smart portfolio decisions in emergent situations to mitigate near-term danger while balancing future opportunity Understand Danger / Opportunity Develop a shared framework and context on the state of the world around us MAKE SENSE Agree on Preferred Way Forward Agree on conscious review, observations, and process to guide actions and decisions MAKE CHOICES Be Flexible & Adjust as Necessary Compare initial assumptions with experience, explore gaps, and make mid-course corrections MAKE REVISIONS Solve for Danger / Opportunity Ensure effective execution of decisions made across the organization MAKE THINGS HAPPEN 13
  14. 14. © Pariveda Solutions. Confidential & Proprietary From chaos to a new normal Case: first 6 weeks of COVID-19 Based on the emergent nature of COVID-19, organizations are forced to collapse decision timelines as they attempt to navigate uncertainty High level of anxiety, disruption, and a sense that no-one is in control. Business leaders are in damage control in this phase - short term crisis management and financial tightening up while trying to minimize lay-offs. Vulnerable companies will fail. Things are taking longer than originally expected, but we are over the worst. More companies will fail because they couldn’t ride out the storm – winners and losers start to emerge. Leaders are focusing more on opportunities that are emerging as a picture of the New Normal starts to crystalize. The After-COVID-19 world has changed and will never go back completely to the way it was. Business Leaders who had the foresight, formed their “new normal strategies” and started innovating and adapting early will reap the rewards. Chaos Phase Acceptance Phase New Normal 14
  15. 15. © Pariveda Solutions. Confidential & Proprietary From chaos to a new normal Case: first 6 weeks of COVID-19 As a result, organizations must make informed, consistent, and strategic decisions quickly while right-sizing level of sophistication in order to survive ▪ Ensure safety for employees and customers ▪ Amplify communication, sense of belonging, and personal connection, internally and externally Chaos Phase Acceptance Phase New Normal ▪ Define the business’s new context ▪ Adapt leadership methods for this new context, as needed ▪ Re-tooling leadership expertise for the new normal ▪ Communicate lessons-learned ▪ Celebrate successes Leadership Strategy Process Organization & People Technology ▪ Make sense of the current situation ▪ Solve for survival of the business (e.g. emphasis on cash vs margin) ▪ Discover key changes in the business environment ▪ Allow for “unknown/unmet” ideation (i.e. how can we plan for things we haven’t thought about before) ▪ Emphasis on market development and sales (over e.g. new product development) ▪ Harness opportunistic openings (e.g. inorganic growth) ▪ Execute business continuity plans if needed ▪ Redefine critical tasks to work non-traditional channels (e.g. virtual collaboration) ▪ Include more (i.e. also non-critical tasks) to the new- work-order ▪ Improve process based on lessons from previous phase ▪ Institutionalize what worked and re-design what didn’t ▪ Design for flexibility in preparation for a next crisis ▪ Promote mental and physical health ▪ Adapt HR methods to virtual (e.g. evaluations and training) ▪ Reinforce good behaviors and correct bad ones ▪ Decide on phasing-in talent: who comes back in who continues working from home ▪ Redesign structures and talent capability & development strategies, based on lessons learned from the previous phase ▪ Implement virtual work (changes may be needed throughout the technology stack) ▪ Ensure security ▪ Monitor technology operation and improve as necessary (e.g. mitigate security issues in virtual- meetings platform) ▪ Re-evaluate product/project portfolio and restart previously “paused” projects that qualify ▪ Accelerate technology that enables new opportunities 15
  16. 16. © Pariveda Solutions. Confidential & Proprietary ▪ We will remain open… ▪ We are observing CDC recommended practices Not attractive: “It’s all about us” ▪ You don’t have to leave your home for shopping… ▪ We will bring the car to you… ▪ If you want to visit us, these are our opening hours… ▪ And we care about the safety of our community Attractive: “It’s all about you” Both screen shots taken on 04/11/2020 Acceptance Phase Example: Safeguarding revenue by attracting customers through appropriate messaging 16
  17. 17. © Pariveda Solutions. Confidential & Proprietary Organizations must find the right balance between broad objectives and focused analysis (mitigating danger), while keeping an eye on future risks and opportunities (pursuing opportunity) Where do we go from here? Step 1: Define Priorities Emergent events collapse timelines and move priorities; agree on what is important Examples: cut costs “on purpose”, maintain/accelerate projects with early upside, safeguard critical operations Step 2: Analyze the Portfolio Execute 3-step process against in-flight and planned projects; rapid over reactive Remember: Can’t touch, Must not stop, Rapid quantitative and qualitative analysis Step 3: Plan for the Future Begin future planning to adapt to the New Normal and address potential future “wave” Harness opportunities and improve contingency planning across Leadership, Strategy, Process, Organization & People, and Technology 17
  18. 18. © Pariveda Solutions. Confidential & Proprietary Stan Vlasimsky Over 30 years of experience in Consulting across a wide number of industries and areas – with an emphasis on large scale transformation. He was at Accenture for 25 years serving clients around the globe. Dimitrios Vilaetis Over 20 years of experience in Corporate Strategy and IT Strategy, both in Management Consulting and in industry. Chief Strategy Officer in industry; also, Bain & Co, Booz Allen, Accenture. Robert Greiner Over 15 years of IT experience in several industries emphasizing on the strategy and delivery of custom software applications. Expert in architecting cloud solutions focusing on quality and automation. Stan.Vlasimsky@ParivedaSolutions.com Dimitrios.Vilaetis@ParivedaSolutions.com Robert.Greiner@ParivedaSolutions.com Prepared by:

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