Classic approaches to business strategy assume a foreseeable future based on reasonable assumptions about developments in markets, technologies, or regulation. In an increasingly uncertain world, this approach falls short. The portfolio-of-initiatives framework, developed in the early 2000s by McKinsey director Lowell Bryan, draws on ideas such as the three horizons of growth and Hugh Courtney’s levels of uncertainty1 and offers a way to develop strategy in a more fluid, less predictable environment. In the article “Just-in-time strategy for a turbulent world,” Bryan compares such a portfolio to a convoy of ships in wartime: their numbers and diversity improve the likelihood of survival for any one of them.
The framework takes into consideration two aspects of initiatives: familiarity and time. Initiatives that allow a company to deploy a larger amount of distinctive knowledge than its competitors have give it the advantage of familiarity and the possibility of reaping superior rewards for a given level of risk. Such initiatives warrant the largest commitment of resources. Next come initiatives that require a company to acquire certain kinds of knowledge. In developing initiatives over time, a company must have enough of them not only to ensure large current returns but also to place bets that could help it grow in the medium and long terms.
To apply the portfolio-of-initiatives approach, companies must take three steps: undertake a disciplined search for a number of initiatives that provide high rewards for the risks taken; monitor the resulting portfolio rigorously, reinvesting in successes and terminating failures; and take a flexible, evolutionary approach that allows for midcourse corrections. The resulting strategy, like a conscious form of natural selection, identifies the strongest initiatives and sheds the rest. The increasing uncertainty of today’s business environment and the importance of balancing risks with rewards make the portfolio-of-initiatives framework more relevant than ever.
