Investment Mix: “The 5 E’s” Alignment to Strategy

Have you ever encountered an initiative that seemed so far removed from effectiveness that you couldn’t fathom how it received approval in the first place? Chances are, you’ve witnessed such situations more than once, and you might have even found yourself caught up in the ensuing chaos.

The approval processes for initiatives can be quite diverse, ranging from stringent and rigid procedures with arbitrary requirements to more flexible and loosely structured ones. However, regardless of the approval method, the ultimate litmus test for any initiative should be its ability to positively impact business strategy, objectives, or goals. In essence, the approval process becomes inconsequential when the initiative fails to meaningfully contribute to the fundamental aspects of the business.

This is where the concept of an investment mix comes into play, offering a potent tool to swiftly gauge whether an initiative is deserving of the fancy slide deck it was presented on.

In most cases, businesses operate under a well-defined vision and mission, which inevitably leads to the formulation of a multi-year strategy brimming with targets and goals. You’ll find these objectives prominently displayed in cubicles, integrated into annual performance evaluations, and closely linked to overall company performance.

Introducing the 5 E’s

I find it helpful to provide a simple categorization structure to potential initiatives to determine where to invest budgets. Acronyms and alliteration help me remember things, so I chose to use a construct I label “The 5 E’s”.

Explore

When we’re exploring, we’ll need to prove that a concept is worth further investment. This usually requires a high tolerance for risk and an understanding that not every investment will yield a return, but rather provide insight into what may be worth investing in further. These tend to be very hypothesis driven, short term in duration, and an expectation for every “bet” we place, only a certain few will “win”.

Extract

If we’ve proven a concept or capability, it may be worth mining it further to see what kind of value can be extracted from it later. We take the concepts that were proven “wins” and push them a little further to see what other potential for value is there.

Expand

When we’re confident that a concept is solid, a hypothesis proven, and value can be extracted, then it’s time to invest fully. This is where we might start to put in more permanent systems and teams in place to fully build and maximize the value available.

Enhance

Once a system is in place, running, and proving valuable, it may be time to optimize it properly to ensure it serves its value proposition to the highest potential. This may be enhancements for customers, system efficiencies, automations, and so on. Very frequently it can apply to “keeping the lights on” operations funding.

Exit

Once a concept or system has reached it’s maximum life, it may be time to retire it or wind it down. Perhaps there are better alternatives, the system has become too costly to maintain, or the customer demand is no longer relevant.

The Investment Mix aligned to Strategy

Your investment mix is going to vary based on your strategy, goals, and circumstances. It may be set as a default over the course of a 5 year roadmap, but the mix will likely need to change year to year, and in some cases adjustments may need to be made quarter to quarter.

In a surplus year, it may be wise to really invest in the Explore category to break into new markets, build new systems where exploration is affordable. In a leaner year, the focus may be a bit more on customer retention and lowering costs of operation, so a higher percentage may fall in the Enhance category.

Every year (or planning cycle) there is a set budget for where the company is going to invest and operate. Having an idea of what the investment mix is going in and then adjusting based on needs is a great way to make budget decisions more flexible and less rigid.