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A Portfolio Approach to Strategic Planning

Updated: Jun 15, 2023

Part 1 of a series

Most financial services companies have some sort of strategic plan; some sort of document that describes their targeted customer segments and market area, and outlines some strategies and tactics that the organization intends to execute to serve them. All too often, there is too little connection between this strategic intent and what is usually a large list of projects to be undertaken in the coming months.

Bridging that gap with a missing layer of innovation strategy that can mean the difference between regularly creating new sources of value and being caught up in an endless cycle of catch-up spending.

Those long lists of projects and ideas can arise from all corners from within and without the organization and often have a wide variety of complexity, time horizons, strategic value, and level of effort. That makes it hard to know where to get started, and easy to feel overwhelmed, especially with limited resources.Leadership teams need a way to bring some logical and productive order to the chaos.

The Growth Atlas

We use a series of strategic maps we call the Growth Atlas to help facilitate a series of strategic discussions and decisions within the leadership teams of organizations we work with to help them focus on the most critical priorities. This is the first of a series of posts designed to help you turn those never-ending lists into a dynamic portfolio that takes into consideration the potential risk and return of each project, and help you understand how each project on the list aligns with your strategic priorities.

In this post we will share some best practices on how to get started. In subsequent posts we will help you break down those big projects with big risks into actionable steps with manageable risks, but first we need to get the whole picture to help us focus and prioritize.

It’s all built around our trademark FIRE™ Process (Fast, Iterative, Responsive Experiments), and it is designed to shorten the time between ideas and results. The FIRE™ Process combines the best parts of modern agile business methods– like Lean, Agile, Scrum, Design Thinking, and others– into an effective and repeatable process that focuses on the things that really matter.

Financial institutions (and by extension their owners, investors, managers, analysts, regulators, and customers) value the predictability of results. The industry sells 95% of the same products, with 95% of the same features, at 95% of the same prices, governed by 95% of the same philosophies, policies and procedures.

The unsurprising result is that pretty close to 95% of institutions return very similar results; typically with annual growth rates in the low to mid single digits; regional and national macroeconomic trends notwithstanding.

Institutions have spent decades and centuries refining best practices of managing these mature and largely stable and predictable (outside of macroeconomic trends) businesses. These core strategies work well to help us manage the core business and ensure consistent, continued results. They work well because we are traveling along a familiar path and they rely on analyzing past performance and what is known about the existing business.

We call this ‘extending the line’ of current results.

New Tools Needed for New Sources of Growth

What if you want to ‘bend the line’ and venture into adjacent products or market segments in which you have no prior experience? If your goal is to increase core growth from 3-5% to 8-10% you can’t just do more of the same and expect different results. You need to do something different than you have in the past. You need to offer new products or services to your existing customers, or you need to expand into new market segments and reach people you haven’t been able to reach yet. Maybe both. Your existing strategies and tactics are not as helpful here.

What if you want to ‘transcend the line’ completely to achieve dramatically different results? Think about how what was once called The Apple Computer Company transcended the line multiple times, first with digital music, then with smartphones, and again with tablets. They changed the game with radical new offerings and moved from 3% market share in a mature and crowded industry to a peerless leader in fast growing new areas.

Your core strategies and tactics are really not very helpful at all in this case, as we have talked about before.

You need a new set of maps and tools to be effective when you move beyond your core business, ones that recognize that you are moving away from the known knowns and established best practices, and toward exploring the unknown and discovering next practices.

Part of performance within the core business is judged by how many of the projects on the corporate to-do list were completed on-time and on-budget. Later in the process we are going to make sure that those kinds of business-as-usual projects get removed from our innovation portfolio to be handled by our traditional methods.

When we innovate new ideas we are specifically looking to do things that are not predictable, by definition. So we can’t even generate such a list, let alone accurately predict in advance the timetable and budget for the various steps. If we can, we aren’t actually doing anything innovative. If we do it anyway, despite recognizing the traditional business practices are deficient in this area, we are setting ourselves up for failure.

These risks are all multiplied in this era of digital disruption. Even you are satisfied with your current level of growth, your customers are demanding new services and experiences, and your competitors are delivering them.

The Strategic Allocation Map

The first foundational framework we use to help organizations bring order to the chaos is the Strategic Allocation map. Innovation isn’t about adopting the latest technology or unexpected discoveries that come from a Lab. Innovation is about doing something new to produce tangible results.

Your efforts need to produce results that are meaningful to the business and your overarching strategy; if they are not, ‘innovation’ will either waste away or be (rightfully) cut in the next budget cycle. Producing meaningful results requires a level of intentionality. This map helps to align your project list to your overarching corporate strategy, begins the process of constructing your own innovation portfolio, and starts the prioritization process at a high level.

On the vertical y axis, you can rank your various projects and initiatives along a relative scale of how orientated they are towards generating income versus reducing expenses in the short-term (0-18 months). Managing these competing demands should look familiar to any manager, and in financial services we think of this as the efficiency ratio.

As we move from left to right across the horizontal x axis we add the additional dimension of time. This is where we think about the difference between merely extending the line of our current results into the future and bending or transcending the line.

Many organizations find that their initial strategic allocation is over-weighted towards reducing expenses in the short-term. This is not surprising, especially given that many organizations have an efficiency ratio that is unsustainable over the long-term. The critical piece here though, is that a strategy dominated by reducing expenses is also unsustainable over the long-term. We know from experience that growing revenue faster than expenses is way more fun than trying to cut expenses faster than declining revenue.

You need to invest some of those cost savings into new sources of revenue, but even this strategy has a limited shelf-life. You can’t expect to simply do more of what you are already doing today and expect that to generate significantly different results in the future. You will also need to make foundational investments in new capabilities to enable different outcomes in the future.

It may take some time and effort, and some serious debate and difficult choices by your team; but over time, your innovation portfolio should continue to morph so that you are investing greater sums into foundational capabilities for future growth.

There is no one-size-fits-all portfolio allocation, but you one sure way to fail is to under-weight the future.

Managing your projects with a portfolio approach requires a bit of a change in mindset:

  • The relative allocation of the portfolio should not stay static, it should evolve with changing circumstances and priorities

  • Accordingly, different projects might be prioritized at different times, for different reasons

  • Not everything will stay in the portfolio; if some things are not falling off over time, you aren’t doing it right

  • Projects that are required for regulatory compliance should not be considered part of the portfolio and should not be funded by your innovation budget

  • The portfolio needs to be reviewed and rebalanced periodically

In future posts in this series we will talk more about allocating limited resources for growth and what to do when your current list is overwhelming.

Read Part 2 of the series: Plotting the Growth Vectors of Your Strategy ________________________________________________ The corporate and executive growth programs from the Alloy Labs Institute are the industry leaders in helping financial institutions build and leverage their innovative capacity to create competitive advantage and drive growth. We have taught these principles in boardrooms and classrooms around the world, including at leading graduate schools of banking. Unleash exponential growth potential, build internal innovation capacity to "unbreak the bank", and quickly forge ideas into results. You can also learn and apply some of our industry-leading tools and frameworks and learn best practices from peers on operationalizing innovation in our open (co)Lab sessions. Both are open to non-Alloy Labs member financial institutions.


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