Corporate Strategy from the Bottom: Project Portfolio Management Can Help Clarify Your Strategy

Introduction

Big and structured organizations have a well-defined process to identify their corporate strategy and then break it down into objectives for business units, operations etc. These companies have a strategic planning process in place.

Frequently, this is not what happens in smaller organizations where this process is often not structured and sometimes not present at all. In these situations, the strategic direction is more a “sensation” that top-down flows through the structure, sometimes is mentioned during conventions, other times written in brochures, or discussed among employees during a coffee break.

In this kind of scenario most of the people and most of the projects are managed on a day-to-day strategic approach, where mid-managers base their decisions on two approaches: keep on doing what done in the last 6-12 months and try to understand the organization’s strategy to address day to day activities.

If you have the opportunity to look at the portfolios of these companies, this comes out very clearly as they have:

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  Many former projects still in place and with resources still assigned;

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  Some projects still existing but stopped somewhere;

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  Ready-to-start new projects based of the new exciting ideas and strategies coming from the top;

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  New ideas (good & bad) not linked to any strategy ready to be implemented.

This kind of project portfolios don’t fully reflect the real strategy of the organization as they are a mix of many strategies (declared, hidden, deduced, unreal) coming from many “business as usual” years.

These kind of project portfolios have a lot of active initiatives and are affected by a strong multitasking syndrome. Referring to the Theory of Constraints (TOC), (Goldratt, 1997) what happens in situations like these is that most of projects are late, many of the (real) strategic objectives are missed or not pursued at all, resources are multi-utilized and overbooked and the link between the actual strategy in Top Management’s mind and what happen in their organization is very weak.

Project Portfolio Management (PPM) methodology wants to connect Strategy with actions. This methodology uses the Corporate Strategy (but works well with Strategic Business Units strategy or department objectives resulting from Corporate Strategy) to create a set of criteria and a mathematical model to evaluate organization’s projects, programs or activities on the base of their alignment with the strategy and the expected benefits produced. The set of initiatives selected within a Portfolio are called “components”. This analysis done after the definition of the strategy but before the implementation of the components (that this strategy should realize) helps the organization to focus on the right initiatives, investing time and money on what is aligned with objectives, at least terminating what is no longer useful.

There are three main objectives that management try to achieve by implementing a robust portfolio:

• 1.

  Value maximization/Utility: The allocation of resources depends on the value of a project in the broader scope of portfolio. The aim is to select the optimal set of projects so to maximize the value of the entire portfolio, taking into account profitability, return-on-investment but also probably to success and risk and any other objective set by the organization at a strategic level. Project evaluation tools like financial or scoring models are used at this stage;

• 2.

  Balance: To create the right balance between initiatives turns out to be a crucial element to implement project portfolio properly. A balanced portfolio increases the likelihood of management success as it aimed at fairly distributing project on the basis of project type, long vs short-term, high vs lower-risk. The main issue here is to find the most effective mix of components according to a number of parameters assessed, in order to avoid multitasking, overlapping and poor performance;

• 3.

  Strategic direction/Fit: The link between strategy and actions is reflected by the creation of a portfolio that truly helps in the implementation of the organization’s business strategy. The focal point here is to what extent does the execution of the portfolio contribute in reaching organizational strategic goals. The first concern here is to ensure that the effective breakdown of spending, both in terms of financial and human capital, mirrors the organization strategic priorities. The fundamental concept of strategic fit will be further analyzed below.