To realize organizational strategy better and faster, companies want the resources they have—funding and people—to go to those initiatives that are most likely to have the greatest strategic impact. But most executives struggle to prioritize their initiatives.
Why is this so difficult? In large part because of what is not known. Most portfolio management processes generate too little (if any) evidence of how investments in an initiative relate to the initiatives’ deliverables (i.e., features and capabilities) and how deliverables relate to strategic objectives and KPIs.
This was certainly the case at the global financial services group, BBVA.[foot]Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) in 2021 operates in more than twenty-five countries, with €720 billion in total assets, and 122,000 employees serving eighty million customers. “BBVA in brief,” BBVA, https://shareholdersandinvestors.bbva.com/bbva-group/bbva-in-brief/.[/foot] In 2016, a decade into a digital transformation journey during which the company implemented Agile methodologies and built data monetization capabilities,[foot]E. A. Martínez, J. M. Arias, F. Girardin, B. H. Wixom, and I. A. Someh, “BBVA Fuels Digital Transformation Progress with a Data Science Center of Excellence,” MIT Sloan CISR Working Paper No. 430, April 2018, https://cisr.mit.edu/publication/MIT_CISRwp430_BBVADataScienceCoE_AlfaroMurilloGirardinWixomSomeh.[/foot] company executives realized that they needed to know a lot more to ensure scarce resources went to the initiatives with the greatest potential impact on the bank’s strategic objectives. They also needed to increase their pace of learning, in order to have a more dynamic grip on the company’s investment portfolio and its impact.
Starting in 2016, BBVA executives created an evidence-based process they called the Single Development Agenda (SDA) to better align the company’s investments in digital innovation initiatives to its strategy.[foot]The authors studied BBVA’s SDA process from late 2020 through July 2021, including conducting formal interviews with ten process participants. A forthcoming MIT CISR case study will articulate the SDA process in greater depth.[/foot] This process evaluates and prioritizes more than two thousand initiatives every quarter. In creating a single investment model for the entire bank, the executives significantly improved their capacity to learn from initiatives and allocate talent to the most strategically promising ones.
By the second quarter of 2021, 75 percent of BBVA’s total investments in initiatives went toward strategic priorities, up from 60 percent in 2018. During the same period, the SDA process helped strategic initiatives realize value sooner, in significant part because it ensured that the most impactful initiatives were allocated the talent they needed. The average duration of initiatives that generated strategic impact was reduced by 25 percent, from an average of around 7.5 quarters in 2018 to 5.6 quarters in second quarter of 2021.
BBVA’s experience illustrates four principles that MIT CISR has come to believe, based on several years of research, all companies should follow to realize their strategy with innovation initiatives.