The document discusses six critical principles of strategic portfolio management: 1) Aligned decision forum - Drive real decision making and conflict resolution at all levels. 2) Value creation focus - Maximize value created across the organization. 3) Credible, comparable evaluations - Allow participants to make and accept decisions. 4) Embrace uncertainty and dynamics - Treat uncertainty explicitly. 5) Clear communication and learning - Share information, update it, and improve results. 6) Inclusive, collaborative process - All stakeholders participate openly and benefit. The document provides examples and discussion of how to apply these principles to strategic portfolio management. It also includes polls to gauge participants' interests and challenges.

1. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 1
Six Critical Principles of
Strategic Portfolio Management
Stanford Strategic Decision and Risk Management Certificate Program

2. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 2
Upcoming Courses
http://strategicdecisions.stanford.edu
SEPTEMBER 2014 (Stanford)
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
7 8 9 10 11 12 13
14 15 16 17 18 19 20
Decision Analysis
Strategic
Portfolio Decisions
Advanced
Decision Analysis
Biases in
Decision-Making
Converting
Strategy into Action
Decision Quality
Scenarios and
Effective Forecasting

3. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 3
Hannah Winter
Partner, SDG
Associate Program
Director, Stanford SDRM
Meet Today’s Speaker
Ryan Chin
Senior Associate Director,
Stanford Center for
Professional Development
David Matheson
President, CEO, and Co-founder
SmartOrg, Inc.
www.smartorg.com
Also Featuring

4. Six Critical Principles
of Strategic Portfolio Management
(c) 2000 - 2015 SmartOrg, Inc.4

5. What would you do in George Pake’s position at
Xerox PARC?
(c) 2000 - 2015 SmartOrg, Inc.5

6. A great technology and a compelling customer
need are necessary, but not sufficient to change
the world.
What is missing?
(c) 2000 - 2015 SmartOrg, Inc.6
A compelling and robust economic and
strategic reason to do it (versus
something else).

7. The three basic dimensions of great portfolio
results.
(c) 2000 - 2015 SmartOrg, Inc.7
What
How
Process:
Milestones
Authority
Reviews
Resources:
Assignment
Budgeting
Timelines
Economic:
Prioritization
Evaluation
Strategy
Great portfolio results
Who
Decisions

8. The portfolio process drives two interacting sub-
processes.
(c) 2000 - 2015 SmartOrg, Inc.8
Making a project the best it can be
• Iterative, Ongoing
• Focus on project teams
Selecting the best projects
• Periodic, Comparative
• Focus on executives
Planning
•How to do it?
Goal
•What is our
target?
Evaluation
•What is worth
doing?
Return
Strategy
Risk
Cost
Together these drive a virtuous cycle of increasing returns.

9. Poll: Which area most needs improvement in
your organization?
• What: Economic –
Prioritization, Evaluation,
Strategy
• Who: Resources –
Alignment, Budgeting,
Timing
• How: Process –
Milestones, Authority,
Reviews
(c) 2000 - 2015 SmartOrg, Inc.9
Poll 2
Vote by selecting your
answer in the polling
window on the right
side of your screen.
Remember to click Submit.
Note: only aggregate responses will be displayed.

10. (c) 2000 - 2015 SmartOrg, Inc.10

11. The design challenge is applying these principles in a
way that best fits your company.
(c) 2000 - 2015 SmartOrg, Inc.11
Aligned Decision
Forum
Drive real decision-making and conflict resolution
at all levels.
Value Creation Focus Maximize value created across the organization.
Credible, Comparable
Evaluations
Allow participants to make and accept decisions.
Embrace Uncertainty
and Dynamics
Treat uncertainty explicitly.
Clear Communication
and Learning
Share information, update it and improve results.
Inclusive,
Collaborative Process
All stakeholders participate openly and benefit.
Principles of Strategic Portfolio Management

12. Aren’t we all on the same team?
(c) 2000 - 2015 SmartOrg, Inc.12
Aligned
Decision
Forum
Value
Creation
Focus
Clear
Communication
& Learning
Inclusive,
Collaborative
Process
Principles
of SPM
Credible,
Comparable
Evaluations
Embraces
Uncertainty
and Dynamics

13. Too many projects, not enough resources – what would
you do in this situation?
• A high-tech packaging company built on
tremendous innovation over decades in materials
and design.
• Increasing global competition and erosion of its
advantage.
— Its products were increasingly undifferentiated.
— Margins eroding dramatically.
— R&D and NPD had in recent years failed to produce.
• The portfolio was choked with R&D and NPD
proposals.
— CEO has asked for more innovation
— Largely cost reductions and incremental projects.
— New innovation was crowded out.
— Lots of churn and debate as projects struggled to get resources.
— They had 70+ projects and could only support about 15.
(c) 2000 - 2015 SmartOrg, Inc.13

14. Which approach produces the best result?
• Business cases – CFO created a business case process that gathered
relevant data and put it in financial terms. Modeled after successful
capital investment process.
• Project management – Assign clear project leadership responsibility,
form teams, create plans with clear milestones and deliverables.
Pursue the best plans, hold people accountable.
• Resource allocation – Core issue is that certain resources are
oversubscribed. Create resource managers to assign key resources
based on guidelines and situation specifics.
• Scoring rules – Define essential criteria, such as strategic fit, size of
opportunity, technical difficulty and investment. Assess score for each
project on scale of 1-5 on each dimension. Take weighted average to
get figure of merit.
(c) 2000 - 2015 SmartOrg, Inc.14

15. Typical approaches often fail to resolve the real portfolio
issues
“Business cases strongly favored incremental
projects.”
“Project management methods created more work
on projects we would cancel.”
“Resource allocation efforts abdicated the companies
most important investment decisions to relatively low-
level managers.”
“Weighted scoring rules simply elevated politics to a
new level of sophistication.”
(c) 2000 - 2015 SmartOrg, Inc.15
APPROACHES THAT DID NOT WORK
Too many projects —
how to sort them out?

16. Good evaluation worked.
“When we got clear about value, many
project leaders voluntarily cancelled their
own projects; they realized they could better
direct their efforts to higher-value projects.”
“We reduced our portfolio from 70 to 20
projects, improving the return by more than
100%.”
(c) 2000 - 2015 SmartOrg, Inc.16
Too many projects —
how to sort them out?

17. Line 1
Line 2
Line 3
Line 4
Line 1
Line 2
Line 3
Line 4
Value Creation Focus. Maximize value creation
across the organization.
(c) 2000 - 2015 SmartOrg, Inc.17
People
Structure
Information
Objectives are driven by
personal agendas,
functional perspectives, and
individual biases.
Individuals and groups think
clearly about economic and
strategic issues and creatively
about how to improve value.
Metrics and analysis are not clearly
connected to value creation, or they
are manipulated to advance personal
agendas.
Line 1
Line 2
Line 3
Line 4
Information selected to
support personal
agendas or positions.
Irrelevant information
brought to bear on
decisions.
All the information needed to
inform value creation, both
positive and negative, are
incorporated into a neutral
evaluations
Metrics and analysis inform
understanding of economic outcomes
and drive choices.
Low High
Takethesurveyat:www.smartorg.com/survey

18. Poll: Which Value Creation element most needs
improvement for you?
(c) 2000 - 2015 SmartOrg, Inc.18
Poll 6
• People
• Structure
• Information
Vote by selecting your
answer in the polling
window on the right
side of your screen.
Remember to click Submit.
Note: only aggregate responses will be displayed.

19. About 55% of companies have challenges with
Value Creation Focus.
(c) 2000 - 2015 SmartOrg, Inc.19
Take the survey at: www.smartorg.com/survey

20. Useless process and political battles.
(c) 2000 - 2015 SmartOrg, Inc.20
Aligned
Decision
Forum
Value
Creation
Focus
Credible,
Comparable
Evaluations
Embraces
Uncertainty
and Dynamics
Clear
Communication
& Learning
Inclusive,
Collaborative
Process
Principles
of SPM

21. How do you resolve conflict?
Politics: deal-making in the smoke-filled room
Boss decides: benevolent dictator
Sharing: everyone gets some
Persuasion: argue until everyone agrees
Deny: make nice, maybe it will go away
(c) 2000 - 2015 SmartOrg, Inc.21

22. Poll: How do you resolve conflict?
• Politics: deal-making in
the smoke-filled room
• Boss decides: benevolent
dictator
• Sharing: everyone gets
some
• Persuasion: argue until
everyone agrees
• Deny: make nice, maybe
it will go away
• Other
(c) 2000 - 2015 SmartOrg, Inc.22
Poll 3
Vote by selecting your
answer in the polling
window on the right
side of your screen.
Remember to click Submit.
Note: only aggregate responses will be displayed.

23. Portfolio Management = The discussion of what to do about the gap
between top-down aspiration and bottom-up reality
(c) 2000 - 2015 SmartOrg, Inc.23
Top-Down
• Where do we want to go?
• What do we need to get
there?
Bottom-Up
• What do we have in our
portfolio?
• What should we keep,
modify, shut down?
Portfolio Manager Role
• Set funding priorities
• Allocate resources among
segments
• Balance innovation and
incremental projects
• Meet corporate financial
goals
• Assure a steady stream of
successful new products

24. $-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
2004 2005 2006 2007 2008 2009 2010
Example top-down meets bottom-up: a growth
gap.
(c) 2000 - 2015 SmartOrg, Inc.24

25. Line 1
Line 2
Line 3
Line 4
Line 1
Line 2
Line 3
Line 4
Aligned Decision Forum. Drive real decision
making and conflict resolution at all levels.
(c) 2000 - 2015 SmartOrg, Inc.25
People
Structure
Information
Players compete to make
decisions or advance their own
agendas without an effective
forum for joint portfolio decisions.
Players deliberate, resolve
conflict, and take actions
based on cooperative
discussion.
The process is unclear
or most projects are
exceptions to the
process.
Line 1
Line 2
Line 3
Line 4
Decisions are made using
“gut feel” based on
anecdotal information.
Meaningful and relevant
information is summarized at
appropriate level of detail for
decision at hand.
The process brings the right
people together, clarifies top-
down aspirations and bottom-up
reality, and frames decisions
about prioritization and strategy
Low High
Takethesurveyat:www.smartorg.com/survey

26. What do you do when you don’t believe the numbers?
(c) 2000 - 2015 SmartOrg, Inc.26
Aligned
Decision
Forum
Value
Creation
Focus
Clear
Communication
& Learning
Inclusive,
Collaborative
Process
Principles
of SPM
Credible,
Comparable
Evaluations
Embraces
Uncertainty
and Dynamics

27. A major challenge in portfolio management:
(c) 2000 - 2015 SmartOrg, Inc.27
Saying “no” to a good idea…
In order to fund a better one…
How do you make a “no” stick?
• Power
• Persuasion

28. The gold standard of persuasion:
(c) 2000 - 2015 SmartOrg, Inc.28
The political loser comes to the same
conclusion himself.
This sucks for
me but I have to
agree it is the
right priority.

29. The silver standard of persuasion:
(c) 2000 - 2015 SmartOrg, Inc.29
The political loser accepts that the process was
fair and accurate.
This sucks for me
and I think it’s the
wrong choice, but
at least they heard
the full story and
made a tough call.

30. Credible, Comparable Evaluations. Allow participants
to make and accept decisions.
(c) 2000 - 2015 SmartOrg, Inc.30
People
Structure
Information
Line 1
Line 2
Line 3
Line 4
Project evaluations are
internally inconsistent
without underlying mental
models or logic.
Information is selected
to support individual
projects without regard
for consistency across
projects.
Information comes from
knowledgeable sources,
and is shared, vetted,
and understood across
the projects.
Common evaluation
framework follows clear
and comprehensible logic;
common issues are treated
in common ways.
Significant advocacy: the
objective is to “win” by having
requests granted and gaming
the system is tolerated.
Those whose preferred
alternatives are rejected
find the basis for the
decision convincing.
Low High
Takethesurveyat:www.smartorg.com/survey

31. Summary of last three principles
Embrace Uncertainty and Dynamics
• Assumptions are always wrong
• Treat uncertainty explicitly
Inclusive Collaborative Process
• Avoid the great portfolio / budgeting brown-out
• All stakeholders benefit from the process
Clear Communication and Learning
• Do people know what needs to be done next?
• Share, update and improve portfolio information.
(c) 2000 - 2015 SmartOrg, Inc.31

32. The design challenge is applying these principles in a
way that best fits your company.
(c) 2000 - 2015 SmartOrg, Inc.32
Aligned Decision
Forum
Drive real decision-making and conflict resolution
at all levels.
Value Creation Focus Maximize value created across the organization.
Credible, Comparable
Evaluations
Allow participants to make and accept decisions.
Embrace Uncertainty
and Dynamics
Treat uncertainty explicitly.
Clear Communication
and Learning
Share information, update it and improve results.
Inclusive,
Collaborative Process
All stakeholders benefit.
Principles of Strategic Portfolio Management

33. Poll: How important is it for your organization to improve
(or create) its strategic portfolio process along these lines?
• 1 = not important
• 2
• 3
• 4 = important
• 5
• 6
• 7 = very important
(c) 2000 - 2015 SmartOrg, Inc.33
Vote by selecting your
answer in the polling
window on the right
side of your screen.
Remember to click Submit.
Poll 7
Note: only aggregate responses will be displayed.

34. Some companies have well developed portfolio
processes.
(c) 2000 - 2012 SmartOrg, Inc.34

35. Most can implement this typical process.
Confidential and Proprietary
Strategic Portfolio Management (SPM) process
Preparation
• Diagnose
and frame
• Design the
process
• Set
standards
Evaluation
• Model the value
• Incorporate uncertainty
and alternatives
• Develop plans, targets and
information
Calibration
• Compare projects
• Provide peer and
expert review
• Vet assessments
Decision
• Balance the portfolio
• Prioritize investments
• Refine portfolio strategy
Tracking
• Track performance
• Monitor environment
• Refine plans, targets and
information
• Update assessments

36. Making a difference with Strategic Portfolio
Management.
From Xerox PARC to project Runt.
(c) 2000 - 2015 SmartOrg, Inc.36

37. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 37
If you are interested in the concepts discussed in
today’s webinar, please join us on campus in
September.
• Attend “Strategic Portfolio Decisions” to learn how to:
– Use the language, principles, and tools of Strategic Portfolio
Management (SPM) to conduct asset valuations and portfolio
analysis
– Diagnose a portfolio's characteristics and tailor the SPM process to
the types of strategic decisions required to manage the portfolio
– Identify alternative investment levels and choose the optimal
alternative for each portfolio element
– Analyze and allocate resources using portfolio analysis software
– Track and monitor changes in the business environment to re-
evaluate the allocation of resources in the portfolio
• For more information, visit http://strategicdecisions.stanford.edu
8–10
September

38. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 38
The course: develop your ability to be a strategic
leader.
38
Aligned
Decision
Forum
Value
Creation
Focus
Credible,
Comparable
Evaluations
Embraces
Uncertainty
and Dynamics
Clear
Communication
& Learning
Inclusive,
Collaborative
Process
Principles
of SPM
Critical Principles and Concepts Practical Step-by-step Process
Try It: Interactive Simulations and ExercisesConcrete Cases and Examples

39. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 39
Poll:
What is your level of interest in
the SDRM certificate program?
Poll 8
Vote by selecting your
answer in the polling
window on the right
side of your screen.
Remember to click Submit.
• I am interested in attending
courses in September at Stanford.
• I am interested in these courses
but can’t make the September
dates.
• I would like to learn more about
your online courses.
• I am already a participant in the
SDRM program; please contact
me to recommend additional
courses toward my certificate.
Note: only aggregate responses will be displayed.

40. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 40
Stanford Center for Professional Development
Meeting the career-long education needs of engineers, technology
professionals, managers, and executives…online | at Stanford | at work
Graduate and professional courses and certificates, master of science
degrees, custom and executive education programs, free online
webinars, seminars, and live lectures.

41. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 41
Strategic Decision and Risk Management
• Professional certificate program available online | at Stanford | at work
• Directed by Professor Ron Howard, Management Science & Engineering, Stanford
• Educational partnership between the Stanford Center for Professional Development
and Strategic Decisions Group
• http://strategicdecisions.stanford.edu

42. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 42
The SDRM courses relate to and expand upon the
topics we discussed today.
Advanced Project
Management (APM) Program
Strategic Decision and Risk Management (SDRM) Program
Required
Elective
Decision
Quality
Decision
Analysis
Strategic
Innovation
and Design
Thinking
Scenarios
and
Effective
Fore-
casting
Modeling
for Strategic
Insight
Decision
Quality
Practicum
Advanced
Decision
Analysis
Value-
Driven
Enterprise
Risk Mgmt
Managing
Risk in
Healthcare
Orgs
Collaborative
Decision-
Making and
Negotiation
Ethical
Decision-
Making
Leading
Strategic
Decision-
Making
Biases in
Decision-
Making
Converting
Strategy
into Action
Strategic
Portfolio
Decisions

43. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 43
Upcoming Courses
Pricing: $2,750 per
course
For more
information:
Patty Harris
and Kristen Simonds
+1.650.307.6973
scpd-
sdrm@stanford.edu
SEPTEMBER 2014 (Stanford)
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
7 8 9 10 11 12 13
14 15 16 17 18 19 20
Decision Analysis
Strategic
Portfolio Decisions
Advanced
Decision Analysis
Biases in
Decision-Making
Converting
Strategy into Action
Decision Quality
Scenarios and
Effective Forecasting

44. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 44
Ryan Chin
Senior Associate Director,
Stanford Center for
Professional Development
ryanchin@stanford.edu
To contact one of today’s speakers:
scpd-sdrm@stanford.edu
+1 650.307.6973
http://strategicdecisions.stanford.edu
Hannah Winter
Partner, SDG
Associate Program
Director, Stanford SDRM
hwinter@sdg.com
David Matheson
President, CEO,
and Co-founder,
SmartOrg, Inc.
dmatheson@smartorg.com

45. © 2014 by Stanford Strategic Decision and Risk Management. All rights reserved. 45
Upcoming Courses
http://strategicdecisions.stanford.edu
SEPTEMBER 2014 (Stanford)
Sunday Monday Tuesday Wednesday Thursday Friday Saturday
7 8 9 10 11 12 13
14 15 16 17 18 19 20
Decision Analysis
Strategic
Portfolio Decisions
Advanced
Decision Analysis
Biases in
Decision-Making
Converting
Strategy into Action
Decision Quality
Scenarios and
Effective Forecasting
Pricing: $2,750 per
course
For more
information:
Patty Harris
and Kristen Simonds
+1.650.307.6973
scpd-
sdrm@stanford.edu