I disagree with one of the earlier comments that this is “a hopelessly static tool for what may be a fast-moving, dynamic challenge”. I find that this framework is one of the few that allows one to easily incorporate and present dynamics.

Consider, for instance, a scenario tree branching out from the present into the imaginable long term. To terminal nodes, one may associate a Portfolio of Initiatives that is optimized to that scenario. With subjective probabilities on the branches, one may then work backwards, filling in portfolios at intermediate branches, to determine a sensible investment policy for the present day. In doing so, not only would one have something for today, one would also have a response policy for future developments.

In fact, the full “decision tree” methodology could be applied here so as to better assess the “differential impacts of the various potential initiatives”.

Naturally, it would be sensible to continually update this tree, revising the branches and decision points, and updating subjective probabilities.

This article makes a strong case that uncertainty calls for flexible pursuit of diverse initiatives—but any organization takes at least some initiatives, over and above the continuing management of business-as-usual—major investments, product launches, entering new markets, setting up joint ventures and so on. The challenge is working out which to do in what order over what timescale for the best total impact on the trajectory of future performance, and then how to steer those changing priorities.

Unfortunately, the article offers only a crude 2×2 matrix for mapping such a portfolio (except being McK it has to be a 3x3!)—a hopelessly static tool for what may be a fast-moving, dynamic challenge. We can do way better than this and undertake genuinely strategic management of the strategic portfolio if we start from a rigorous dynamic model of the recent and prospective performance trajectory, and layer onto it the differential impacts of the various potential initiatives.

Any organisation interested in this idea should take a look at “Beyond Budgeting” (http://www.bbrt.org) to see how to manage the financials for interactive strategic planning. Instead of a budget (which couldn’t keep up), BB recommends the use of cash forecasting, target ranges and other KPIs (linked to a strategically focused balanced scorecard) together with a culture of openness and trust. Despite the rather scary title, it does work—going beyond a budget doesn’t mean ditching financial control. In fact, financial control is made more relevant by freeing up the finance department to help make strategic decisions, instead of concentrating on variance. International charity Sight Savers International uses BB to great effect, and there are some major companies involved in the BB Round Table.

The use of a mature portfolio management discipline for intiatives in general, including strategic initiatives, can provide multiple benefits and open a new era of collaboration within the corporation or organization. Additional constructs such as portfolios of portfolios and meta-portfolios can bring this to the next level, creating crossover views and analysis, or segmenting by LOB, year / cycle, or other mean portfolios previously unrelated. Key benefits in my experience include (but are not limited to): allow to identify early and discrete trends; help accrue and harvest benefits faster; provide timely and fact-based feedback to board of directors and executives; allow to pool risks and variability and corporate level; reduce variability of strategic execution; allow to optimize the management of OPEX / CAPEX; bring together integrated teams across the enterprise; allow to map transformational efforts (and their progress) across the enterprise. Last point is the imperative need to translate the overarching goals into tangible metrics, which often requires powerful financial analysis.

We are using this framework for our strategic planning exercise. We soon noticed that we need to make changes in a list of areas to our business, including: 1)changing the business model from inside-out to outside-in and strengthening market linkage functions such as product management and product marketing 2)putting in place risk management practice and a company-wide PMO 3)align top executives to think beyond a 12-18 month horizon 4)putting the right people in the right positions to make changes happen.

We built PowerSteering in 1998 to help large organizations manage initiative portfolios (without knowing about this McKinsey work). Ten years later, we still sell the product mainly into IT, product, M&A, or operations functions because no one is in charge of the overall strategic portfolio. Only about 10 percent of our inquiries are enterprises looking to manage all their innovation and strategic initiatives as a single portfolio. This is still the leading edge of management science.

At this time in the economic (hopefully) turnaround, smart business managers are finally focusing more on the revenue side of the equation than the cost side. I agree that a portfolio of initiatives is more important than ever. Some companies, however, may invest larger amounts into areas where they have distinct knowledge and familiarity, which is good, but they short-change investment in growth areas in which they are less knowledgeable and familiar, passing up opportunities for more radical innovation. That happens mainly when they haven’t clarified what it is they need to know in order to make it a viable initiative. It’s a difficult balance, but spending money in the right places in unknown territory can greatly diminish the potential for losses in the short and longer term and lead to significant gains.

I agree with Philippe Cardinael that the portfolio-of-initiatives approach is naturally well suited to some companies, but I would argue that most large companies now adopt this approach to a greater or lesser degree, though not necessarily with the clarity and awareness it demands, nor with the right management processes and structures. Strategic initiatives are most often implemented through formal programmes and projects, rather than through business-as-usual structures. So the initiatives become programmes and get managed by the programme management function in the business. This has its obvious dangers, especially that programme management thinking begins to outweigh strategic thinking. I’ve seen many programmes pursued to the bitter end when in fact they should have been adapted or plain stopped to fit changing strategic circumstances.

As McKinsey points out, shifting to a full portfolio-of-initiatives approach requires substantial change, especially at the top. For me this also means changing the management processes and structures supporting the executive team. Lots of companies now have centralised and quite powerful PMOs – Programme Management Offices. They really should have OSMs - Offices for Strategic Management.

I have seen the portfolio of initiatives work well at two planes of planning and monitoring. A short-to-medium term plane (tactical initiatives) and the long-term plane (strategic programmes). Both need to be strategically aligned and management of the portfolio needs to be well-supported with information from regular environmental scanning and research.

The portfolio of initiatives is indeed a very flexible and evolutionary approach, that fits very well to industries where people are familiar with programme and project management, like high tech. However, the risk is a lack of balance in the portfolio: a focus on short term initiatives and a dominance of hard core technology-driven initiatives. In combination with other approaches like the market share growth (the nine boxes) and/or the 7S, a more balanced approach is feasible.

The portfolio of initiatives approach sounds like a standard for strategic management. The assumption that a company does not need a portfolio of strategies with risk managed in the areas of time, return and investment is what leads to trouble in the long-term.