Portfolio Mapping Framework(s)
The 4-by-3 matrix that will help your corporation stay relevant in the future.
From the dawn of time, the need to make sense of complex situations has pushed humankind to develop frameworks — frameworks that grew in complexity as the things they were designed for were getting more and more complex themselves. Oversimplifying, mathematics, meteorology, physics, astronomy and other sciences are just frameworks designed to make sense of the world and events that we are experiencing.
Corporations are no different — the complexity of their environments has pushed scholars and business practitioners alike to design frameworks that will not only help make sense of the complexity but, at the same time, aid the decision making process.
Since launching new businesses (products) and managing existing ones is at the heart of any corporation’s effort to grow and stay profitable, getting a accurate snapshot of the current line-up is the first step in deciding where to invest.
Being a corporate executive and saying you need your company to me more innovative is not enough — you need to provide the ranks with direction. Portfolio frameworks are there to do exactly that: paint an accurate picture of the current situation that will provide the foundation for innovation direction.
In the research we have done for The Corporate Startup book and work we have been engaged with, we looked at various popular portfolio management frameworks.
Boston Consulting Group Matrix (BCG diagram)
This is portably one of the first portfolio management frameworks ever created, dating back to the 70’s and still in wide use around the world. The framework classifies portfolio items (be it business units or individual products) into four categories based on combinations of market growth and market share relative to the largest competitor. More on this framework here.
Using this portfolio-mapping tool will provide decision makers with a clear picture of the financial and market share sides of their company’s portfolio but no indication on the maturity stage of the items listed and no indication if they keep on serving the same general audience (customer group) with the same offering.
We want to stress out the importance of maturity level, customer segment and value proposition since these are the main reasons why large companies in the past got disrupted by newcomers:
- focus only on the mature business totally neglecting incubating new ideas
- serving only one customer group with one single offering and forgetting to branch-out into new markets with new offerings
(usually these reasons are not so clear cut but a combination of both)
Three Horizons model
In early 2000s a group of McKinsey consultants revolutionized the way companies look at their portfolio by introducing, in the book Alchemy of Growth, the Three Horizon model. The model focuses solely on the maturity stage of the portfolio items — and in doing so it focuses the executives on the need to incubating new ideas before it’s to late. More on this model can be found here.
If the Three Horizon Model answers the question of maturity that the BCG matrix was neglecting, it still fails to paint a clear picture with respect to the market the offerings are designed for and the type of offerings the company has in the portfolio.
The reason why we think Three Horizon was a logical evolution of the BCG Matrix is based on the assumption that market share size has been replaced by the maturity of the item (it is sensible to believe that a H1 item has a consistent market share in comparison to a H3 item) and that products that are underperforming are already in the process of getting discontinued.
Innovation Ambition Matrix
The May 2012 issue of Harvard Business Review featured, in an article titled Managing Your Innovation Portfolio, Basi Nagji’s and Geoff Tuff’s Innovation Ambition Matrix.
Unlike the previous two models we analyzed, this framework is based on two main dimensions; products (new products versus existing products) and markets (new markets versus existing markets).
Some might argue that this model will substitute the Three Horizon model — but, for example, if a product is just addressing a new market with the same value proposition is no indication of its maturity.
The Corporate Startup portfolio 4-by-3 framework
From our experience of analyzing various corporations’ product portfolios using both the Three Horizon Model and Innovation Ambition Matrix we have created a mixed 4-by-3 matrix that, simultaneously looks, at both maturity and value proposition + market aspects of the items.
The model is considering, on one hand the maturity of the portfolio item (from incubation to exploitation) and on the other if the value proposition of the item is new to the corporation or known and if it addresses an existing customer segment or it targets an entirely new one.
To understand our 4x3 better, in the following example, we have mapped out Google’s (or Alphabet’s) portfolio.
We are not proponents of one-size-fits-all tools and frameworks but proponents of collaborative evolution. Models need to evolve together with our understanding of the issues we are trying to make sense of. We are not suggesting that one portfolio framework should be dogmatically used over another — on the contrary, we encourage using an array of models (and continue creating new ones) to increase the fidelity of the picture you are trying to paint. Picture that will help your corporation steer clear of external disruption and continue growing well into the 21st century.