Best practices for aligning projects to corporate strategy

Introduction

Strategic planning becomes meaningless in the absence of a way to execute planned strategies. Organizations execute their strategies through the creation of “strategic initiatives,” comprising portfolios of programs and projects, which become the vehicles for executing the organization’s strategy (Kaplan & Norton, 2001) To what extent does integrating corporate strategy with project portfolio management contribute to organizational success. To seek an answer to this question, which has significant importance for executives and project managers alike, the Center for Business Practices conducted a survey in November 2005, targeting of a broad spectrum of organizations. Representatives of 87 leading companies responded. The results: companies using identified “best practices” most consistently also had the highest rates of project success (CBP, 2005). This paper and the subsequent presentation will discuss this research along with additional insights from follow-on research activities with the top-scoring companies in the survey that demonstrate how to align projects and strategy for corporate business success.

Why Align Projects with Strategy?

Fortune magazine has reported that nine out of ten corporate strategies devised on the executive level never come to fruition (Cabanis-Brewin, 2000). One reason for this is found in a survey conducted by the Society for Human Resource Management and the Balanced Scorecard Collaborative: 73 percent of polled organizations said they had a clearly articulated strategic direction, but only 44 percent of them communicated that strategy well to the employees who must implement it. These companies “are like a body whose brain is unable to tell it what to do.” (Mullich, 2003). Perhaps out of frustration with these failures, many companies are spending less time on strategy; research has shown that 60 percent don’t link strategy and budgeting; and 85 percent of management teams spend less than one hour a month discussing strategy (Hope & Fraser, 2001)

Project management research has shown that most companies, far from having a coherent model for managing the projects as a “portfolio,” have at best a vague idea how many projects they have in the pipeline, how much they will cost, how they will be staffed, or who is qualified to run them, making strategic planning an exercise in fantas (Cabanis-Brewin, 2003). Studies of the failure of customer relationship management systems confirm that lack of knowledge about one’s own company is a primary reason for project failure. Companies who do not know their starting position build future corporate plans not on a solid foundation, but on shifting sand. Furthermore, their leadership often does not understand what is wrong, or how to distinguish what needs fixing.

A glance at the impact that the Balanced Scorecard has had upon businesses gives us some clues. The scorecard, emphasizes the linkage of measurement to strategy. The tighter connection between the measurement system and strategy elevates the role for non-financial measures from an operational checklist to a comprehensive system for strategy implementation. For the first time, the details of the project portfolio (what the Balance Scorecard creators call the “strategic initiatives”) become important to a company’s strategic thinkers (Kaplan & Norton, 2001).

How alignment resolves project management problems

Many studies have cited the lack of executive support as a key contributor to project failure. Project managers complain that their projects do not receive the resources they need. Projects completed “successfully” by project management standards (on time, on budget, to spec) have been considered failures because they did not address a business need. All these issues are alleviated in a company that ties strategic planning to portfolio selection and project execution.

Strategy & Projects: A Research Study

The Strategy & Projects report was the initial product of a three-part research project. Part One was a review of management literature to develop a list of practices for aligning projects and corporate strategy. We first identified those practices that lead to high performance through a search of the literature on the integration of strategy execution, portfolio, program, project, and performance management. This research revealed a set of best practices that we organized into a framework adapted from the McKinsey 7S framework (BrandBuilders.com, 2006). The elements include:

1. Governance
2. Processes

• Strategy Management
• Project Portfolio Management
• Program/Project Management
• Structure
• Information Technology
• People
• Culture.

Best practices were defined under each process area, based on the management research reviewed. These practices were used to develop the questions in the survey. The goal of the survey was to learn whether or not organizations that exhibit these practices are, indeed, high performing, to confirm whether or not the practices identified are really “best practices,” and to identify those practices that are most critical to the success of the organization. Participants rated their organizations on the frequency of their use of the best practices against a 7-point scale, where 1 = “not at all” and 7 = “to a great extent.”

The Survey

Members of the Center for Business Practices Research Network (senior practitioners with knowledge of their organizations’ project management practices business results) were invited to participate in a web-based survey. Of 87 respondents, 84 completed the survey in its entirety. We compared high-performing organizations, low-performing organizations, and all organizations, focusing on whether high-performing organizations exhibited the identified best practices more than the average of all organizations and whether or not low-performing organizations were below average in exhibiting these practices.

How “performance” was defined. Most of the measures we used to ascertain which organizations performed well are familiar to all project stakeholders. We asked not only about the success of project management by conformance to schedule, budget, requirements, and so forth, but also about the overall success of the organization. Practices related to the organizational value of project management, such as the rational allocation of project resources, the skillful selection and prioritization of projects, and the alignment of projects to business strategy, are being supported today by organizations’ increasing use of portfolio management systems and processes. As project management becomes more and more essential to the achievement of strategic organizational goals, these practices will gain in importance for all project stakeholders. The performance measures included:

• The organization’s strategies are executed according to plan.
• The organization’s shareholders are satisfied.
• The organization is financially successful.
• Projects are completed on schedule and on budget.
• Project customers are satisfied.
• Project resources are allocated optimally.
• Projects are aligned to the organization’s business strategy.
• The organization works on the right projects.

Participants rated their organizations on the frequency of their achievement of these measures against a 7-point scale, where 1 = “not at all” and 7 = “to a great extent.” Organizations termed “high-performing” in the results reported better-than-average performance in all areas measured. In particular, high-performing organizations are significantly better than average in allocating project resources optimally, followed by completing projects on schedule and on budget and executing strategy according to plan. Low-performing organizations are significantly poorer than average in allocating project resources optimally, followed by completing projects on schedule and on budget and satisfying the organization’s shareholders.

Exhibit 1. Performance Indicators
Caption: Left bar indicates the frequency with which each measure was reported by the top-performing companies in the survey; right bar indicates frequency with which that measure was reported the low performers in the survey. Central bar expresses the mean of all companies.

Key findings

A significant finding was that the results confirmed the best practices proposed by the management literature and described in this report. This underscores the value of using Strategy & Projects best practices in executing an organization’s strategy. High-performing organizations use Strategy & Projects best practices in all areas more than other organizations, consistently and significantly. Low-performing organizations consistently underutilize Strategy & Projects best practices in all areas.

The Strategy & Projects Framework

Governance

Governance is the policy framework within which an organization’s leaders make strategic decisions. With an effective governance framework all strategic decisions throughout the organization are made in the same manner. Each level within the organization must apply the same principles of setting objectives, providing and getting direction, and providing and evaluating performance measures. Using a common governance framework ensures that decisions are made the same way up and down the organization.

The best practices identified for Governance included:

• The organization has a well-defined strategy
• A documented strategy execution plan guides strategy execution efforts
• Strategy is communicated clearly to those developing portfolio and program/project plans to ensure that those initiatives support the organization’s strategy
• Portfolio, program, and project managers feel a sense of ownership about the organization’s strategy execution plans
• Appropriate and effective processes are in place to monitor and manage risk

The most often used governance practice by high-performing organizations is having a well-defined strategy. They also are significantly better than average at having project managers feel ownership of their strategy execution plans, followed by having appropriate and effective processes in place to monitor and manage risk.

The Seven Processes

Strategy Management. Strategy management moves the organization from its present position to a future strategic position in order to exploit new products and markets. Strategy management is accomplished through the application and integration of strategy management processes such as mission-vision formulation; strategy formulation; planning; execution; and monitoring/control. Best practices identified for strategy management included:

• Strategy performance is measured, compared to objectives, and activities are redirected or objectives changed where necessary
• There is an understanding of the impact of projects or project management activities on the creation and implementation of strategy
• The organization’s strategic plans cascade down from corporate strategy to business unit strategy to portfolio, program, and project strategy
• Corporate and business units assemble a strategic portfolio of programs and projects and measure the strategic contribution of a program or project and adopt or reject programs/projects based on this information
• As strategy cascades down the organization, performance measures are established at each level (business unit, portfolio, program, project) to link up with the strategic performance expectations of the entire company

The most often used practice by high-performing organizations is having strategic plans that cascade down from corporate strategy to business unit strategy to portfolio, program, and project strategy. High-performing organizations are significantly better than average at having performance measures established at each organizational level (business unit, portfolio, program, project) to link up with the strategic performance expectations of the entire company.

Exhibit 2. Strategy Management and Projects
Caption: The left bar in each set indicates the frequency with which that metric was reported by the top performers in the survey; right bar indicates the reported use of that best practice by low performers. The central bar expresses the mean. Note the dramatic difference between high and low performers on each measure.

Project Portfolio Management. One goal of portfolio management is to maximize the value of the portfolio by careful examination of candidate projects and programs for inclusion in the portfolio and the timely exclusion of projects not meeting the portfolio’s strategic objectives. Portfolio management is accomplished through the application and integration of portfolio management processes such as:

• Inventory: process for capturing project data and organizing for portfolio analysis
• Analysis: process for aligning projects to business strategy, examining business and project risks, and prioritizing projects in the portfolio
• Planning: process for approving and funding the project business plans; allocating resources and scheduling projects
• Execution: process for executing the portfolio of programs and projects by means of budgeted resource allocations; focus on getting the work done efficiently and effectively
• Monitoring/control: process for tracking a portfolio as programs/projects are executed, detecting problems or changes in underlying premises, and reporting to appropriate management levels
• Portfolio improvement: process for making necessary adjustments to portfolio.

Best practices identified for PPM included:

• A list of current projects (active, proposed, on hold) is documented.
• Projects are prioritized using a scoring system that uses strategic alignment as a criterion to determine the priority of the project with respect to other projects.
• Metrics are captured to assess the performance of the project portfolio.
• Performance results of the project portfolio are communicated to stakeholders.
• Reviews of portfolio performance and changes in the business environment may cause decisionmakers to realign the portfolio (killing projects or putting them on hold, re-allocating resources).
• Enough resources are in place to make the project portfolio achievable.

The most often used practice by high-performing organizations is having a documented list of the organization’s current projects; they are also significantly better than average at having enough resources in place to make the project portfolio achievable.

Program/Project Management. Programs are collections of projects that unify and leverage the contributions of projects in the portfolio; a program of projects may be established to meet a key strategic objective. Program/project management is accomplished through the application and integration of program/project management processes familiar to us all: opportunity assessment, initiation, planning, execution, monitoring/control, and closing, including lessons learned. Best practices identified for program/project management were:

• The organization’s strategic objectives are an input to the project initiation process.
• The organization has a process for identifying project opportunities and determining if those opportunities are in line with the corporate strategic direction.
• Review of the program/project involves a reverification of critical success factors — including resource availability and the continued validity of the business case.
• Project performance is monitored (schedule variance, budget variance, earned value).
• Program/project performance feedback is used for managing strategy execution.

The most often used practices by high-performing organizations are monitoring project performance and having a process for identifying project opportunities and determining if they are in line with the corporate strategic direction. They also are significantly better than average in using program/project performance feedback for managing strategy execution.

Structure. Corporate strategy affects the choice of organizational structures; likewise, organizational structures are important to the execution of corporate strategy. To execute strategy effectively, managers must make sound decisions about structures and develop methods or processes to achieve the needed integration of structural units. Organizational structures take many forms, each affecting the speed at which change can be brought about. They include line and staff structures, functionalized structures, matrix structures, multidimensional matrix structures, strategic business units, laissez-faire structures, and virtual structures (listed here in order of their increasing ability to adapt to rapid changes in strategic direction demanded by changing market conditions). The best practices identified included:

• A strategic (enterprise) project office (sometimes called the Office of Strategy Management). plays a role in linking the organization’s projects to its strategic plans.
• The company has an organizational structure (strategic project office, office of strategy management, strategic steering committee, etc.) that is responsible for managing strategy execution.
• Project management is clearly established and embedded within the organization’s business management structure.
• Information about strategy and projects flows freely between business units facilitating strategy execution.

The most often used practice by high-performing organizations is having project management clearly established and embedded within the organization’s business management structure, along with having project management clearly established and embedded within the organization’s business management structure.

Information Technology. Organizations need appropriate information tools are in place to implement and automate the Strategy & Projects processes as well as align the other elements of the framework. Information technology is a supporting system that provides simple, actionable information to decision makers enabling the continuous planning and execution of strategy. Strategy execution involves participation and communication up and down the organization, as well as lateral flows of information and coordination across organizational units. Making strategy work also requires feedback about organizational and project performance and then using that information to fine-tune strategy, objectives, and the execution process itself. Some of the best practices identified were:

• IT tools enable appropriate communication of strategy and strategic performance throughout the strategic management chain, both top-to-bottom and bottom-to-top
• IT tools provide real-time visibility into resources, budgets, costs, programs and projects
• IT tools are used to develop alternative strategic and project portfolio scenarios
• IT tools integrate strategy execution management, portfolio management, program/project management, and performance management functions
• IT tools provide the capability to monitor and control risks, issues and financials across portfolios
• IT tools provide information on the availability of resources

The most often used practice by high-performing organizations is having IT tools that provide the capability to monitor and control risks, issues and financials across portfolios. They also are significantly better than average at having IT tools that integrate strategy execution management, portfolio management, program/project management, and performance management functions.

People. The execution of strategy ultimately depends on individual organizational members, particularly key managers. So aligning strategy with training, managing, measuring, rewarding, and promoting people are key ingredients in effective strategy execution. Best practices identified for “people management” included:

• Project stakeholders understand how they can influence the successful execution of strategy and how their work is important to execution outcomes.
• Project stakeholders have clearly defined individual and team performance targets that are aligned with strategic objectives.
• Performance management reviews are structured to reward or correct individual performance based on the employee’s contribution to strategic objectives.
• Project stakeholders clearly understand and buy into the organization’s strategies.
• The project management staff is capable of creating, deploying, and maintaining enterprise, portfolio, program and project strategies.

The most often used practice by high-performing organizations is having project stakeholders’ buy-in to the organization’s strategies. High-performing organizations are significantly better than average at having performance management reviews structured to reward or correct individual performance based on the employee’s contribution to strategic objectives.

Culture. Corporate culture—the beliefs, behaviors, and assumptions shared by individuals within an organization— includes such things as procedures, values, and unspoken norms. Culture can have a significant influence on how well strategy is executed in organizations. The importance of achieving strategic objectives, how performance is communicated, whether or not changes create competition or cooperation, who can access and use Strategy & Projects technology, whether or not decision-making is done in command-and-control environments or by self-directed teams, how functional units work with each other—these are just a few of the issues of culture that need to be addressed in creating a structured approach to executing strategy. Some best practices include:

• Project management is valued throughout the organization.
• A focus on strategy execution is an important part of the organization’s culture.
• Risk planning is an important part of the organization’s culture.
• Senior management is trusted, and consistently rewards successful project behaviors.
• There is a shared understanding and commitment about the organization’s long-term objectives and its strategy for achieving them.

The most often used practice by high-performing organizations is having leadership that is trusted. High-performing organizations are significantly better than average at having senior management that consistently rewards successful project behaviors

Top 10 Best Practices that Set High Performers Apart. The following best practices were used significantly more often by high-performing organizations than other organizations. Information technology best practices in particular set high performers apart. The practices are listed in order of their significance.

• IT tools integrate strategy execution management, portfolio management, program/project management, and performance management functions.
• IT tools are used to develop alternative strategic and project portfolio scenarios.
• Project management is clearly established and embedded within the organization’s business management structure.
• IT tools provide information on the availability of resources.
• Senior management consistently rewards successful project behaviors.
• The enterprise project office allows the organization to manage its entire collection of projects as one or more interrelated portfolios.
• Program/project performance feedback is used for managing strategy execution.
• IT tools provide the capability to monitor and control risks, issues and financials across portfolios
• Project management is valued throughout the organization.
• The company has an organizational structure (strategic project office, office of strategy management, strategic steering committee, etc.) that is responsible for managing strategy execution.

Further Exploration of the Results

As we continue to follow up on the findings summarized above, more detailed information will become available. Still under way at this writing are interviews with top performers on the survey to discover practical tips for strategy-project integration. Some of the questions we are exploring include: What specific tools (software) within your organization contribute to your alignment processes? What was your implementation process for improving alignment? What was the timetable? Can you make a correlation between this alignment and the business metrics important to your company or industry (stock price; awards won; customer satisfaction metrics, and the like)?

Investigating the link with company performance. A corollary of this research has been to attempt to track financial performance of the companies responding to the survey to determine whether these practices can be shown to also lead to an improved bottom line. Most accounting measures of performance are based on the assumption that a business firm’s efficiency of operations is the best way to assess goal attainment. So finding a measure that will reflect wise investments in the project portfolio, based on strategy, is proving a challenge. With the guidance of University of Tennessee-Knoxville finance professor John Wachowicz, Jr. we are sifting through the various financial indicators in an effort to develop a reasonable model for measuring our survey population—a group of companies all the more challenging to assess since they include publicly-traded companies, nonprofits, government agencies, and state-owned foreign operations as well as small privately-held service firms. As we investigate the top-performing organizations in the study, one striking, though admittedly anecdotal correlation keeps popping up: nearly every organization in the top 20 performers is the recipient of at least one, and in some cases, many, award(s) specific to their field of endeavor. Coincidence? Or proof of the power of aligning projects with strategy? Stay tuned.