Develop opportunities both in your familiarity and unfamiliarity zones

It’s time for companies to shed the old habit of thinking about growth and business planning on an annual cycle.  That system of planning is not only limiting in that it tends to influence leadership into responding to recent business conditions and near-future probabilities . . . it’s also terribly limiting because once a project is ‘approved’ there is too much pressure on it to succeed.  This is especially so in companies that take a whittling approach to product and service innovations, putting a cap on projects to consider based on their current conditions.

Instead, develop a portfolio of initiatives by examining where projects fit across these two dimensions:  level of familiarity or risk, and the time horizon.

The horizontal axis is the time horizon.  Look at time in 3 increments:

• near term (12 – 18 months)
• medium term (3 – 5 years)
• long term (5 years and beyond)

The vertical axis indicates your confidence:  Look at that in terms of familiarity & risk in 3 increments:

• familiar – you have an edge in taking this action relative to others
• unfamiliar – you wouldn’t be in the best position to take the action versus your competitors today, but you may be able to develop the competencies
• uncertain – the initiative is in such an early stage that no one really knows how it will play out

Then plot initiatives as they arise on your portfolio page in the appropriate box.  The bigger the potential payoff, the bigger the area of the circle.  Now proceed accordingly.

This technique enables a much more evolutionarily approach to taking action on initiatives.  McKinsey & Company developed this model, and a very good interactive demonstration can be found here.

Additionally, here’s what they have to say about the approach:

To apply the portfolio-of-initiatives approach, companies must take three steps: undertake a disciplined search for a number of initiatives that provide high rewards for the risks taken; monitor the resulting portfolio rigorously, reinvesting in successes and terminating failures; and take a flexible, evolutionary approach that allows for midcourse corrections. The resulting strategy, like a conscious form of natural selection, identifies the strongest initiatives and sheds the rest. The increasing uncertainty of today’s business environment and the importance of balancing risks with rewards make the portfolio-of-initiatives framework more relevant than ever.

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