In the final installment of our trilogy, Yves Pigneur and I show you the full spectrum of our prototype Business Portfolio Map. The aim: help organizations understand if their business is prepared for the future or risks disruption.
The Business Portfolio Map visualizes a company’s entire portfolio of business models on a single map. In Part 3 you can see the full concept which is composed of the execution engine (exploit/improve) and the innovation engine (explore/invent). The Business Portfolio Map visualises all of your existing businesses, as well as all of your new growth initiatives. This holistic view shows you if your company is prone to disruption and at risk or if you are prepared for the future.
Let’s recap what Yves and I have talked about in Parts 1 & 2:
The Execution Engine: Exploit/Improve
This is where you manage your existing businesses. In your business portfolio, you hope to keep all your businesses highly profitable and sustainable at the top right of the exploit Map.
Businesses that fall from the top right down to the left are dying or sick businesses that you need to take care of. It may not necessarily mean you kill those businesses -- that may be an option, but ultimately it’s about renovating, improving and sometimes reinventing the business and moving it up to the top right hand corner.
New businesses that graduate from the Innovation Engine to the Execution Engine usually start out at the bottom left. They are still very fragile, barely profitable, and need a lot of care. Your goal is also to move them up to the top right hand corner.
Ultimately, a healthy Execution Portfolio has a good number of businesses at the top right, a number of young new businesses at the bottom left, and as few as possible anywhere else.
The Innovation Engine: Explore/Invent
When it comes to the Innovation Engine, you want to explore many, many different ideas. New business models and initiatives will start out at the bottom left of the map: their profit potential is unclear and you have little evidence to prove that the idea is likely to work. You have to iteratively design, test, and adapt the idea, it’s value propositions, and business models until it makes it to the top right hand corner: a tested business idea with substantial profit potential.
The particularity of the Innovation Engine is that you need a lot of cheap projects at the bottom left in order to product a winner that makes it to the top right. You need to explore, prototype, and test many ideas cheaply and quickly to learn and adapt. The investment at this stage isn’t big. The more evidence you gather that an idea might work, the more you invest and start to move the idea up towards the right. Out of ten ideas maybe five will die, three will remain mediocre, and two will be home runs.
Be careful not to push promising ideas from the Innovation Engine into the execution space too quickly. These young businesses need traction, stability, and protection when you move them into the execution engine. They might get swallowed up by the execution engine or killed by the dominant business models’ antibodies -- it’s a corporate habit that can kill your innovation engine.
Are you prepared for the future?
The Business Portfolio Map visualizes how prepared your organization is for the future. You have an obvious challenge if you have only few businesses at the top right in the execution engine, and a lot of business at risk with low returns. You haven an even bigger challenge when your innovation engine shows few new promising and validated future growth engines in the pipeline.
The ultimate goal of a balanced Business Portfolio Map is to show good, solid business models at the top right, and a lot of fresh new ideas at the bottom left. A few of those ideas should be creeping up to the top right of the explore square and soon make it to the Execution Engine. If you can visualize that for your business then you can say you’re prepared for the future.
Amazon is an example we frequently cite of a company that intentionally manages a diverse portfolio of existing and promising new business models. The company continues to produce growth with its existing businesses (e-commerce, AWS, logistics, etc.), while juggling a portfolio of potential future growth engines that may become big profit generators one day (e.g. Alexa, Echo, Dash Button, Prime Air, Amazon Fresh, Mayday Button, etc.).
How can you manage your business model portfolio?
Yves and I put together three steps to get started with the Business Portfolio Map:
1. Assess: Evaluate your present business model portfolio by analysing current and future business contribution (profitability & potential of new ideas) and risk (disruption risk & validation of new ideas).
2. Strategize: Define objectives, allocate resources and design your desired future business model portfolio. In other words, define actions in the Execution Engine (increasing returns / reducing disruption risk) and the Innovation Engine (allocating resources for new ideas and testing).
3. Process: Implement your innovation strategy and transform your portfolio with three type of actions:
Create: acquire or transfer businesses from the innovation engine.
Raise: Move businesses from the bottom left towards the top right corner.
Eliminate: Sometimes businesses can be divested or spun off.