Tuesday, May 15, 2007

Optimizing Corporate Portfolio Management (CPM)


As Indian companies continue to emerge and gain prominence on the world stage, those companies who outperform will be those who make better resource allocation decisions. Companies that do this consistently over time will lead their industries. It is time for corporates to optimize their Portfolio Management for competetive advantage and outperformance.

"Optimizing Corporate Portfolio Management", authored by Anand Sanwal, is a useful book whose main premise is that where an organization allocates its resources is what truly drives it strategy and financial returns. So while company leaders issue strategy in presentations or in speeches, this is really not what creates strategy - it is where money gets spent that determines this.

Anand explains, "Let's take a very simple example of a company which has $100 to invest and whose leadership says that their main strategy is to focus on customer loyalty. However, when you look at where they invest their money, you see that $75 is spent on customer acquisition and $25 is spent on initiatives focused on customer loyalty. So even though the stated strategy is customer loyalty, the true strategy is one of acquiring new customers if you look at the resource allocation."

The book offers a practical methodology to bring this powerful discipline to your organization. The book is targeted at any organization struggling to figure out how to better allocate resources - this is every company and any sub-organization within a company, e.g., Information Technology (IT), marketing, R&D, sales, operations, product groups, etc who manage discretionary resources.

The book can be used to help general managers decide which product they should invest in or which country/region deserves more investment versus another. It advocates treating all investments as part of a portfolio whose risk and reward must be balanced - similar to the way a person tries to manage their money as a portfolio of investments.

The focus of the book is not on describing why CPM is important but in showing people how to implement a CPM strategy. It also features case studies of successful companies deploying this discipline including AmEx, Cisco, HP, TransUnion and the State of Oregon. The case studies demonstrate that the CPM discipline can be used across organization of all types, across industries and also across for profit and not for profit (government) organizations.

Anand beleives that the complexity of decision-making cannot be boiled down into two dimensions or some overly simplistic framework. Decisions within organizations require using data and are much more complex. CPM understands this complexity and is about providing a way to make better decisions in a more holistic, complete way.

Anand holds a degree in finance and accounting from the Wharton School of Business and a degree in chemical engineering from the University of Pennsylvania. He is currently handling the American Express’ CPM effort which spans the entire organization and captures over $4 billion of per annum discretionary investment spend. He is infact also the holder of a CPM patent.

So "Optimizing Corporate Portfolio Management" is a book from the horse's mouth and is a pragmatic approach on how to link capital allocation to strategic planning. Anand's approach to enterprise portfolio management is lucid for a beginner, practical for a practioner, and provides a lot of insights for the experts of CPM.
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