Resource optimisation within portfolio planning

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Question: We are finding it very difficult to re-allocate resources, not because we do not know where better opportunities lie, but because our organisation is resistant to change. Is it worth investing considerable time and effort in a portfolio planning resource allocation process, knowing that the final outcome will be hard, or even impossible to implement?

Answer: In our experience, going through a rational, formal resource allocation exercise within a wider portfolio planning process is by far the best way of readying your organisation for change. By involving all the key decision makers and influencers, they end up themselves fashioning a better solution, because the logic of the process drives them there. Yes, some managers will “cheat” the process, but you can usually limit distortions by applying checks and balances within the process itself.

Key action points

Resource optimisation is about the optimal allocation of obtainable resources against opportunities, according to the vision / mission of your business strategy.

It is therefore about stopping or reducing your investment against some opportunities, and building your resources against others.

For this exercise, your entire business should be defined within one of two types of opportunity:

1. Foundational opportunities – critical to the effective running of the business, and an essential source of support for several other opportunities. These opportunities should be defined according to the minimum level of resource required

2. Rateable opportunities – these are opportunities where resources can be reduced, maintained or increased, according to their calculated cost-benefits

The factors which influence your allocation of resources within resource optimisation portfolio planning include:

• Financial payback:
• Sales
• Profits
• Cashflow
• Economic profit
• ROI Return on investment
• Growth
• Resources:
• Available resources (trained and ready to be fully operational)
• Constrained resources (resources which are hard to renew)
• Obtainable resources (resources you can hire within a reasonable time)
• Strategy:
• Strategic fit
• Image/reputation
• Portfolio building
• Market positioning
• Cost of reduction/exit:
• Strategic costs
• Commercial costs (calculable financial outlay)
• Legal costs (exposure to legal action)
• Risk:
• Commercial risk
• Technical / technology risk (product / service may not work)
• Resource risk (cannot obtain needed resources)

While reducing your whole business to foundational and rateable opportunities, and profiling them against your rating criteria may seem complicated enough, the real complexity behind portfolio planning is addressing the politics of moving around resources within your organisation, especially if these resources will thereby cross departmental boundaries.

Where the organisation will be most resistant to change is exactly where a formal portfolio planning resource optimisation process is most essential. The rationality of the process drives the logic of change, and forces people resistant to it to articulate logical arguments to support their case.

In more detail …

There is one ting that you can be sure of, if you have been in business several years: there are things that you are doing, and have been doing for years, which are not as profitable for you as things you could be doing.

You may know what these things are, you may not.

In most organisations, the comfort of the familiar outscores the fear of the new and untried. The bird in the hand is worth two in the bush. But what if it isn’t? What if the birds in the bush are considerably more valuable than the bird you already have, which may even be a liability rather than an asset?

“Oh, but we have to do it,” you will say. “We have always done it, and our customers will walk off if we don’t continue to offer that service.”

Is that the truth, or is that fear of the unknown talking?

There is one robust test – assess the ROI return of investment of each opportunity you are addressing, and then decide what you should be doing. This is resource optimisation within a broader portfolio planning process - the optimal allocation of obtainable resources against opportunities, according to the vision / mission of your business strategy. It is therefore about stopping or reducing your investment against some opportunities, and building your resources against others.

Without going to quite these lengths, you can run a quick Pareto analysis by calculating where the majority of your sales come from today, in terms of products / services and customers. If you have anything like a normal business, you will find that most of your sales come from a very few products / services sold to a very few customers. Of course, this is not the full story, which would include a full ABC activity based costing analysis as part of a rigorous ROI return on investment analysis. And yet, even this is not the full story, because you have to balance off future and potential glories against past ones. Think Nokia (mobile phones, from conglomerate holdings), IBM (consultancy, from box-selling), Charles Scwab (e-trading, from traditional brokerage) and Apple (iPod, from general computing) – all of whom radically shifted resources towards greater opportunities, which is why you would ultimately implement a full resource optimisation portfolio planning process.

For this exercise, your entire business should be defined within one of two types of opportunity:

1. Foundational opportunities – critical to the effective running of the business, and an essential source of support for several other opportunities. These opportunities should be defined according to the minimum level of resource required

2. Rateable opportunities – these are opportunities where resources can be reduced, maintained or increased, according to their calculated cost-benefits

Every opportunity has to be defined large enough for you to be able to allocate to it discrete resources, significant enough to be considered as part of a prioritisation exercise.

The temptation will be for managers to protect their pet “lame ducks” as foundational opportunities, necessary to future operations, and shielded from scrutiny. You should therefore build checks and balances into your process by limiting the number and size of foundational opportunities allowed (e.g. a maximum of 5 foundational opportunities, representing a maximum of 20% of all opportunities).

The factors which influence your allocation of resources within resource optimisation include:

• Financial payback:
• Sales
• Profits
• Cashflow
• Economic profit
• ROI Return on investment
• Growth
• Resources:
• Available resources (trained and ready to be fully operational)
• Constrained resources (resources which are hard to renew)
• Obtainable resources (resources you can hire within a reasonable time)
• Strategy:
• Strategic fit
• Image/reputation
• Portfolio building
• Market positioning
• Cost of reduction/exit:
• Strategic costs
• Commercial costs (calculable financial outlay)
• Legal costs (exposure to legal action)
• Risk:
• Commercial risk
• Technical / technology risk (product / service may not work)
• Resource risk (cannot obtain needed resources)

Each of these elements of the calculation needs to be agreed with the Board, along with the formula for deriving the final rating, before the start of the process.

Tools

Mud Valley has developed an Excel-based tool (“Oo!”, the Opportunity Optimiser), and a complementary e-survey to guide your staff through the profile building process for each opportunity. This can be used directly by you, or with the active assistance of Valley Strategies, or other members of the Mud Valley Strategy & Brand Marketing Community.

Alternatively, you may wish to consider the LSE's Equity tool (more money, nicer graphs), available through Catalyze Ltd..

We can help you in two ways - we have a mass of smart strategic brand marketing tools, processes and workshop techniques for you to use, and a mass of smart brand marketing agencies as members across the world with niche knowledge and experience to support you thereafter.

Click here for free tools and know-how materials from the Mud Valley™ strategy & brand marketing.

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