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July 9, 2008
What's In Your Portfolio?
For providers (instead of consumers), Portfolio Management is a robust and widespread discipline that has meaning which crosses industries and departmental functions. In short, it organizes opportunities deemed to be beneficial into suites of categorized commitments that make the opportunity "actionable" . But portfolio management is most often associated with related efforts that represent either the authorizations of the action, the methods of the action, or the customer of the action -- in effect tracing the run from supply to demand. The efforts articulating this run are, respectively, programs, projects and solutions. One confusing aspect of the way these efforts are supported is that portfolios are mistakenly thought to be components (or "children") of programs and supersets (or "parents") of projects. In fact, that is an erroneous association: instead, as illustrated below, a portfolio is a model that relies on the other three efforts to be actualized. Further, it is the interoperations of these efforts that powers and stabilizes the portfolio.
Why is portfolio management often misplaced amongst these efforts? There are two predominant reasons. For one, practitioners of these efforts often mistake scorecards and dashboards for portfolios. And two, portfolios are often pursued under "performance" requirements (i.e., requirements to increase the rate of return on equity), whereas the actual purpose of a portfolio is to provide a model for the commitment to the opportunity, defining how value will be recognized, not how "value will be generated and captured".
The language that helps to understand where portfolios help goes like this: "what is the benefit of the investment model?" Obviously, one model could be modified or even discontinued and replaced, while still addressing the same apparent opportunity. At the least, this simply acknowledges that two competitors may chase the same prize in different ways, with both making progress (without predicting which one will prevail or even whether one necessarily must). But within the model, other key actions are generally positioned as catalysts or governors -- including things like identifying a distinctive market niche and specially producing for it, tracking the cost of scaling up for the demand level in that niche at a given quality benchmark, and exercizing policies to keep decisions and approvals predictable throughout changing circumstances -- all relative to a certain type of enabling stakeholder who is the primary beneficiary.
Posted by Malcolm Ryder at 9:21 PM
July 5, 2008
Beyond the Spin: Measure What You Give
Does your organization really measure what you give, or does it mainly spin what you measure?
Bruce MacEwen's industry-leading website Adam Smith, Esquire offers an opportunity to gaze into the abyss of metrics and walk away without jumping. In the article
"How High Quality Are Your Lawyers? (How Can You Tell?)"
a close reading shows contrasting business models contesting notions of "performance @ cost" and "value @ quality". In the competitive situation covered, one upstart model strategically goes after a chunk of the opponent's business by bringing customers the performance/cost equation, surprisingly leaving the traditionalist competitor to justify how pricing for that same chunk of business could rationally be based on value/quality. What makes this all interesting, notes MacEwen, is the idea that 99% of what the traditionalist does is what the upstart can steal away.
For those of us who fell out of the old hot habit of saying "disruptive innovation" once a month, this looks like news, but not new news. Still, there are some fresh perspectives worth bringing to this contest.
As seen in the diagram below, the different models above are easily distinguished by what they actually offer, making it inappropriate (for managers) and intellectually dishonest (to customers) for either of them to masquerade as the other. Customers buying into cost/performance are investing in the promise of efficiency, while those buying into value/quality are investing in the promise of reliability.
In MacEwen's article, we are sensitized to the problem that high-prestige value/quality law service firms institutionalize a significant unmanaged cost in the form of "available overachievers", against which these firms then build a hedge by charging premium prices beyond rational evidence of economy for the customer. But what is sold as the justification for this pricing? Their quality?
To be sure of avoiding management posturing, "quality" here must mean only one thing: adherence to the promised appropriateness of the deliverable versus the stated need. Consider that meaning against the question of what it takes to get quality: the value/quality firm proposes that by exceptional capability they eliminate the risk of not getting quality. Therefore, the key variable that this firm actually addresses is unpredictability in the customer's need. As an operational tactic, the value/quality firm hoards talent in order to avoid outsourcing and to presume agility.
But the cost/performance firm basically argues (by demonstration) that legal work requires only competency to sufficiently meet most stated needs -- not a matter of being exceptional but instead simply correct for the task, which eliminates unnecessary effort from the equation right off the bat. Of course this presumes a degree of predictability in scope of need -- and agreement on the scope becomes the main feature.
The discussion above intends no effort to offer a wisened critique of law firm strategy. That said, on the surface there are no truly important differences between marketing professional services in law versus other disciplines where subject matter expertise is the raw material and advice is the product.
Idiosyncracies in the legal services industry will of course provoke distinctive problems and solutions there, yet these are probably driven more by the state of mind of the customer - which is the underlying important difference because it is the competitive arena. Oversimplifying MacEwen's article, the difference between the value/quality firm and the cost/performance firm is that the former sells confidence while the latter sells credibility.
Are there spats? One accusing the other of con games, and the other accusing the first of being incredible? MacEwen's article says yes; but what is further interesting (per evidence of the illustration above) is the opportunity that both types of firms can objectively profile themselves on common ground (efficiency, capability, reliability and acceptability) -- and use those profiles to determine how to optimally segment and grow a shared market. When they don't do that, you can bet it isn't because the customers don't care.
Posted by Malcolm Ryder at 9:59 AM