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The Business Portfolio Map

By Alex Osterwalder and Yves Pigneur

We have prototyped a new tool called the Business Portfolio Map. The aim: to help organizations understand if the business is prepared for the future or risks disruption.

Execution engine and innovation engine

The Business Portfolio Map visualizes a company’s entire portfolio of business models on a single map. In the image above 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, at risk, or if you are prepared for the future. More importantly, the Business Portfolio Map can help companies make better investment decisions.

Let’s walk through how the Business Portfolio Map works.

 

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. 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 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.
  1. 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 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.


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, its value propositions, and business models until it makes it to the top right hand corner: a tested business idea with substantial profit potential.

To visualize the portfolio of potential new businesses we use two axis, similar to the business model portfolio of existing businesses:

  1. Expected return: Ideas and initiatives that have only limited potential to create substantial future revenues and profits go at the bottom of the Limitations include size of market, revenue potential, pricing, etc. Business models with large potential revenues and profits sit at the top of the spectrum. Equally important here is to judge how robust a business model is: e.g. in terms of recurring revenues, long term growth, scalability, protection from competition, etc.
  2. Innovation risk: On this axis you evaluate how much you de-risked a good looking business Ideas for which you have no evidence yet are very risky to invest in–these new initiatives sit on the left hand side. Ideas for which you rigorously test desirability, viability, and feasibility sit on the right hand side of the spectrum. The more you are confident an initiative will work based on tests and the resulting evidence, the more they move to the right. The more they are on the right hand side, the less risky they are to invest in.

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 a few businesses at the top right in the execution engine, and a lot of business at risk with low returns. You have 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?

We 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 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:
    1. Create: acquire or transfer businesses from the innovation
    2. Raise: Move businesses from the bottom left towards the top right
    3. Eliminate: Sometimes businesses can be divested or spun

 

This is an excerpt from Strategy@Work, a Brightline and Thinkers50 collaboration bringing together the very best thinking and insights in the field of strategy and beyond.

Osterwalder and Pigneur are the authors of Value Proposition Design: How to Create Products and Services Customers Want (2014) and Business Model Generation: A Handbook for Visionaries, Gamechangers and Challengers (self-published, 2010). Business Model Generation is based on a tool called the Business Model Canvas. The book’s contents were co-created by 470 Business Model Canvas practitioners from 45 countries, and features a highly visual, four-colour design that explains a range of strategic ideas and tools.