A Formula For Investment Success – Customize Your Investment Journey

Not all investment types are created equal, so they can’t be treated as if they were.  However, organizations are often uncertain of the need to customize their investment process, and as a result, they don’t appreciate the benefits of a robust portfolio management approach.

That’s a mistake, for two main reasons.  Firstly, portfolio management is a discipline, and general lessons can be extracted from failures and success stories.  Successful ideas and processes are not just bits of local knowledge.  They can be modified and can be used anywhere.  And secondly, management theory is not entirely devoid of intellectual content and can be applied to help organizations succeed.

The case for customization

In the current business environment, investing in improving, optimizing, and transforming is essential to success.  Yet navigating the expanding landscape of investment management approaches can be intimidating.  Organizations should address this by using a framework to design investment approaches that deliver maximum value, aligned with their expectations.

Deciding on this best approach for change initiatives is a growing challenge for PMOs and other business and strategy leaders.  The pressure to improve and transform through technology is constant, and the range of approaches available is expanding.  This leads to a situation where many leaders know that they have to “do something”, but are unsure exactly what that something should be, and what approach to take.

Reasons to customize

As we saw in the last blog, there is a significant difference in the failure rate between the four types of investments: task optimization, process optimization, business optimization, and business transformation. It’s essential to understand why those discrepancies occur, because that helps us understand how best to approach our own investments.

Is it possible that the investment types have different characteristics, including the complexity of the model, proximity, uncertainty, fragility, and time to money?

By analyzing proximity, complexity, uncertainty, fragility and time to money for each of the investment types, we can see that the correlation between failure and these five underlying structures are strong.  The chart below shows that relationship, with the relatively simple task optimization investments having the lowest failure rate and lowest underlying structures score, while the complex business transformation initiatives have the highest underlying structures score along with the highest failure rate.

Understanding this relationship allows us to better understand the difference in performance between business transformation and process optimization and between any of the four types of investments.

At UMT360, we recommend segmenting your investments because this helps avoid the misaligned frameworks that lead to missed expectations and investment failure.  But there is some work to do before you segment your investments. The factors influencing the design and selection of investment activities are fundamental to the environment in which you operate, consisting of your type of investment, i.e., task, process, or business optimization or transformation.  Each organization must decide on the level of specificity that they need.  Each investment type should have a profile with defined goals, activities, tools, and level of detail for business models.

The strong correlation between failure rate and the underlying structures is clear.  Customizing investment approaches to help ensure that the right way of working is being applied to all investments is critical to success, and that’s where effective portfolio management can become a key differentiator.