Part one in our trilogy focuses on managing the existing business. Every portfolio starts with a look at managing and improving the businesses you already have. In our prototype, Yves and I visualize the portfolio of existing businesses on two axis:
1. Profitability: How much profit do the existing business models generate? Business models with high profit margins, and a lot of profit, sit at the top end of the spectrum. Low profit margins and low profit overall sit at the bottom--these could potentially be very large businesses but they are not very profitable. This of course is the most traditional end of the spectrum.
2. Sustainability or disruption risk: How sustainable is your business model, and how likely is it to be disrupted? Models at risk may be very established businesses, but prone to disruption for technology, market, or regulatory changes. Those companies sit on the left hand side. Strong business models with moats to protect them on the other hand are very unlikely to be disrupted. They sit on the right hand side.
Look at your existing business models and place them on the visual Portfolio Map we prototyped. Obviously you want to strive for very strong business models that your protect your organization from the competition.
We also experimented with adding visual annotations to the map. This would allow making conflicts or synergies between business models explicit. We could also indicate concrete financials, trends or trajectories of business models (e.g. growing, shrinking, etc.).
In the second image we sketched out different business model actions. Ultimately, you want to improve all your businesses and move them to the top right corner. In other words, you try to make every business more profitable (obviously), but also more sustainable and less prone to disruption. For example, it’s more sustainable to compete on better business models and not just products that are often easier to copy. An existing business that is likely to be disrupted can be renovated and moved to the right to make it more sustainability.
Businesses that were once very profitable (like Kodak’s analog film business) fall to the left hand side from being hard to disrupt (e.g. patents or size) to being very likely to disrupt (emergence of digital photography). That business model expired. On the other hand, completely new business models come in at the bottom end of the spectrum because they are not yet established. You need to grow and protect a new business model to move it up the spectrum.