Vision - strategy - objectives - projects - outputs, and return
do we need an ultimate management model?
Luca Romano, PMP
Project Director, Nexen – Gruppo Engineering
Which is the best way to nimbly be aligned with your strategy? To be alone. Is it possible to be so agile for a company? No, it is not. What can companies do to “stay connected,” improve their connection of strategy to actions, and simplify the way they “change” it? A lot. There are several tools, several maturity models, and several processes. This paper analyzes them and critically describes how dimension, past history, products/services delivered, maturity, and other factors affect the effectiveness in their use. Is it possible to create the ultimate strategy/output/strategy management model? Maybe it is not possible, but it is definitely possible to describe some useful scenarios.
Part I – Author Presentation
Luca Romano has more than 20 years of international experience in business consulting, project management, portfolio management, organization, operations management, and training. He is an executive manager in Nexen Business Consultants as part of the engineering group. He is a professor of international project management and operations management at the European School of Economics; a professor of project management at MiNE Master–Cattolica/Berkeley Universities; and an assistant chair at the Engineering School of Roma Tre University in two courses: “Organization” and “Project Management.”
Part II – “Stay Connected”
Which is the best way to be aligned with your strategy? To be alone.
Imagine traveling alone by car starting from Italy, with the objective to have fun and meet people driving throughout Europe during summer. The vision is clear, and so is the strategy and objectives. You make a driving plan, set-up the car, and go. Measuring the level of achievement of your objectives and the benefits produced is simple, as you are at the same time the performing organization and the final user.
If, during the journey, something changes, you can change your objectives and plan other routes, or maybe change your strategy and go to North Africa, or maybe change your vision and stop somewhere indefinitely if you meet someone really interesting.
Is it possible to be so agile for a company? No, it is not.
What can companies do to “stay connected,” improve their connection of strategy to actions, and simplify the way they “change” it? A lot.
There are several tools, maturity models, and processes. Let's analyze some of them and critically think about how dimension, past history, products/services delivered, maturity, and other factors affect the effectiveness in their use. Is it possible to create the ultimate strategy/output/strategy management model? Maybe it is not possible, but it is definitely possible to describe some useful scenarios.
Strategy and Actions
As stated by Johnson, Scholes, and Whittington (2008), strategy can be defined as “the direction and scope of an organization over the long term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.” I would modify this phrase saying: Strategy is the direction and scope of an organization over the long-term: “which appears to be able to produce” an advantage for the Organization.
We also refer to what the Project Management Institute (PMI) states in The Standard for Portfolio Management – Third Edition about portfolio management: “a portfolio is a component collection of programs, projects, or operations managed as a group to achieve strategic objectives (…) at any given moment, a portfolio represents a view of its selected portfolio components and reflects the organizational strategy and objectives” (Project Management Institute, 2013b, p. 3).
In the mind of the author of this paper, there is always a link that connects strategy with the actions performed in most organizations. If there is a connection, it doesn't mean that:
- The official strategy (we'll call it “conscious strategy”) will produce a real advantage.
- The outputs produced from the actions (and the final advantages or disadvantages arising from what is done) are aligned with the direction of the official strategy (we'll call it “unconscious strategy”).
In any case, organizations “do things,” even if they don't have a declared and/or internally shared strategy, and even when they don't have a strategy at all. In this second case, their strategy is declared from what they do unconsciously.
Starting from this point, every organization has a strategy and a connection, but are the actions that are performed producing any utility?
A conscious strategy defines, in advance, what the organization assumes will be the right direction and scope to gain an advantage in the future. But this assumption can be right or wrong and the actions performed by the organization must be aligned with the strategic direction to verify this.
An unconscious strategy is aligned with the actions performed by definition and can be right or wrong in producing an advantage in the future.
Simplifying the strategy can be right or wrong; the actions can be aligned or not aligned.
So, we have a mix of: conscious, unconscious, right, wrong, aligned, and not aligned.
Exhibit 1: Conscious and unconscious strategy and alignment to actions.
Looking at Exhibit 1, we could say that moving from row A to B means implementing a formal strategic planning process. Moving from column 2 to 3 means implementing a formal portfolio process.
Column 1 is out of the scope of this paper, as it refers to the ability of an organization to predict the future and act accordingly.
The best situation is in E3 and the second best is in C3, as a future value is more important than processes and procedures (even if there's a lot of work to do to stabilize the situation). The worst situation is D3.
The author wants to clarify that this is a simplification to share with the reader; the paper argument and reality (as usual) is in the middle, with infinite combinations.
The Full Scenario
The aim of this paper is to verify and discuss the possibility/opportunity to define an “ultimate” model that could help organizations to define and maintain a dynamic connection between vision/strategy and projects/outputs (Archer & Ghasemzadeh, 1999).
To do this, we must describe the “full scenario” to define the scope of the paper.
The full process: defines the strategy and the objectives of the next “1 or 2” years; selects a list of components (programs, projects, activities) to achieve these objectives; implements the components; controls components’ performance alone and as a group; reviews the components’ planning and the strategy/objectives; verifies the realization of the expected benefits to eventually redefine the strategy and the next year's objectives. There are eleven areas that could be studied separately, but are intimately connected: (1) vision and strategy definition, (2) demand management, (3) ongoing components, (4) components assessment, (5) budgeting, (6) prioritization and selection, (7) portfolio governance and communication, (8) portfolio implementation, (9) portfolio reporting, (10) strategy and portfolio review, and 11) benefits realization (Exhibit 2).
Exhibit 2: Full scenario.
Vision and Strategy Definition
An organization needs a strategic vision to describe the future that this organization wants to create. The strategic vision should be an inspiration for the people interacting with this organization. Based on this vision in mid- and short-term organizations, there is a need to define a mission that can be broken down into several objectives. Objectives are more manageable than a “vision,” as they are conceptually smaller and more measurable, and are used to transfer the vision into results. Strategic objectives must be, at the very least, quantifiable, measurable, and timed. The level of achievement of the strategic objectives can measure executive performance of an organization.
It's out of the scope of this paper to analyze how an organization should formulate the right vision-mission-strategy to succeed; this matter is vast and depends on several factors. What we discuss here is how to use a set of strategic objectives that are already defined. From this paper's point-of-view, we'll not focus on the capability of the strategic objectives to produce a competitive advantage for the organization, but on the fact that the organization is correctly pursuing the objectives defined with its actions.
A key point in the strategy to actions connection: the vision-mission-strategy must be broken down into measures. The organization has to define the indicators (KPIs) that will direct the route to follow and will describe (when measured) the level of success in this endeavor. Simplifying measures could be financial and non-financial (Exhibit 3).
Exhibit 3: Financial and strategic measures of objectives.
Usually, financial measures are delayed and are not able to describe the future perspectives of an organization showing final results from past efforts. In contrast, strategic measures drive future performance.
For the scope of this paper, there are two tools the author considers significant (Romano, 2013b) in strategy definition in connection with actions: Balanced Scorecards and Benefits Models.
Balanced Scorecard (BSC) is the Kaplan and Norton performance measurement framework that adds strategic non-financial performance measures to traditional financial metrics to give managers and executives a more “balanced” view of organizational performance. The BSC presents managers with four different perspectives from where to choose measures, as shown in Exhibit 4. It complements traditional financial indicators with measures of performance for customers, internal processes, and innovation and improvement activities.
Exhibit 4 Perspectives of the Balanced Scorecard
For every perspective/objective, the organization will need to define a timed measure and some initiatives/projects/actions to put in place (Kaplan & Norton, 1996).
Benefits Models create a cause-effects diagram to map the alignment of projects with the strategic objectives.
Benefits Models use a cause-effect chain that can be represented in this way:
Strategic Driver → Objective → Benefit ← Outcome ← Project/Output
As stated by Rankins: “Benefits are defined as the quantifiable and measurable improvement resulting from an outcome (‥) Dependencies between benefits will influence the sequencing and prioritization of projects and benefit realization activities (‥) A Benefit Model covering the entire set of benefits should be created in order to understand the interrelationships between benefits and the various projects in the program's portfolio” (Rankins, 2006).
To clarify the meaning of the words used by the model: an Output is the deliverable of a project, an Outcome is the change produced by the deliverable, a Benefit is a measurable improvement. Exhibit 5 highlights these distinctions.
Exhibit 5 Benefits Model
We call Demand management the process an organization puts in place to collect new ideas, projects, needs, etc. This collection will support the portfolio definition, as it will produce a list of new programs/projects/actions to assess, prioritize, and select concurrently with ongoing components.
Demand Management is an important activity, as from this collection, could arise new ideas from the structure not “imposed” top-down from the top management. When the organizational function involved in demand is delivering only supporting projects for other internal departments within the same organization (like IT), this process is mandatory.
Usually Demand Management is a process supervised by the structure that will manage the portfolio management process.
Demand Management could mean: arrange information, preparing templates or specific tools, identify and map all the stakeholders, schedule meetings, and collect the information in a standardized way and in a way to support the future assessment/prioritization/selection processes.
A key point in the strategy to actions connection: the information collected must be sufficient to support the future selection process. Wrong or insufficient information could occur to produce a portfolio not aligned with the strategic objectives.
All the activities the organization is doing at the time of the definition of the new portfolio could be considered ongoing components. Ongoing components are, for example, projects started in the previous portfolio and not yet completed due to a planning that was longer than the duration of the portfolio or due to delays.
These components must be recorded and assessed, even if they are old investments already done by the organization. They represent the past strategic direction, but most of the time, they are still actual and there is a convenience to completing them. Nevertheless, ongoing components should be subjected to the prioritization and selection process.
Information about ongoing components will be available from the project management system already in place or (if there are actions within the operations) from the management system.
A key point in the strategy to actions connection: the ongoing components area is where the organization has already invested money so they have a “natural” priority on new components not already started. At the same time, they cannot be considered necessary by definition. The balancing of new/old must be considered with attention. Their evaluation must also take care of several factors not applicable to new components, such as: estimate at completion/actual cost, life cycle, past interconnections, etc.
Component assessment means what is usually called business case (BC). The structure and the depth of the BC depend on the level of maturity of the organization; but for the scope of this paper, must be coherent primarily with the prioritization and selection process. Instead, the BC is frequently used only to obtain funding approval. This is not sufficient.
The BC has to be a living document that not only lives at the beginning of the component, but also is updated during its lifecycle and is part of the reporting and re-prioritization processes (for ongoing components).
Another common problem with the BC is its depth and complexity. As the BC must be prepared for all the components (even for those that will not be selected), there must be a cost-opportunity analysis at the base of its structuring. About the content (among other information), the BC must be structured in a way that the components will be also analyzed for the level of expected future contribution to the achievement of the strategic objectives.
A key point in the strategy to actions connection: The business case, among other information, must contain strategic measures defined during the strategic planning process. If it is not so, the BC will be insufficient to support the prioritization and selection process. Components should declare how much they are aligned with the strategic direction.
Budgeting could be described (for the scope of this paper) as the process to define and approve the amount of resources available/needed for the management of the portfolio of components. This process could more or less complex depending on the kind of organization analyzed.
Any component will utilize budget to be implemented and organizations should choose to invest in what will produce a future value in the strategic direction defined. Financial techniques, such as net present value, break even analysis, payback period, benefit/cost ratio, and internal rate of return (IRR) will help an organization with such decisions (Pinto, 2007).
The amount of resources: (a) could be predetermined and fixed before the selection of the components; (b) could be flexible depending on the attractiveness of the portfolio presented; (c) could be previously divided between projects and operations; (d) could be previously distributed as part of the strategic planning between a division or organizational functions; and so on.
A key point in the strategy to actions connection: The budget is usually a limit in the selection of the components that are supporting the strategy realization. The way organizations use budget to select the portfolio is very important. Aside from the situation where the whole budget is accessible from all the components, and only the assessment will decide whether they are in or out, the previous allocation of the budget among several “buckets” (strategic objective, kind of activity, department, geographical area, etc.) is a strategic decision and, so, it must be considered.
Prioritization and Selection
Prioritize and select a means to rank the components on their alignment with the strategic direction and then select the set of components that are feasible for the budget available at the level of risk accepted (Romano, 2013a). There could be several sets of components. A set more aligned with the strategy, but more risky; another less aligned, but less risky and low-cost. If it is possible to choose to be less aligned or more or less risky, an organization cannot choose a component's set that is not feasible or that is over budget.
Methodologically, prioritization starts from the components BC analysis. The BC should contain all the information to implement the prioritization. The prioritization is usually done using a model containing measures based on: strategic alignment, risks, human resources, technical feasibility, marketing, etc. Based on this information, components are ranked top-down on the base of the score gained on the measures or on a balanced mix of measures. This ranking could be “all against all” or could be structured in several clusters where components with similar characteristics compete against each other. The decision on how to create these clusters is very important, as it limits the competition and, for the author, is a strategic decision by itself. The clusters could be based on: organizational area, new/old components, compulsorily, advancement in a component's life cycle, prevalent strategic objective, kind of activity (run, grow, transform), or interconnections between components and programs. The total budget available could be previously assigned to clusters or assigned after the prioritization on the base of the value added contained in the clusters.
The selection process is not necessarily an iterative process, as the perfect portfolio of components rarely exists and there's always the need of balancing and negotiation.
Based on the budget available (that could be expanded with more funding), and the delivering capacity of the organization (that could be expanded with partnerships or external vendors), top management will authorize the portfolio for the coming period.
A key point in the strategy to actions connection: Prioritization and selection ARE the connection with the strategy. A misleading application at this point of the process is the root cause of a disconnection.
Portfolio Governance and Communication
Portfolio governance means to define roles, responsibilities, and accountabilities. It also means: to define the communication and reporting process. The governance process is supposed to manage all the areas included in this paper and supporting the construction of the connection between strategy and actions.
Implementing an office within the organization to supervise the “whole picture” is a good idea, as concentrating all the rings of the chain in one structure increases the probability of maintaining a tight connection between strategy and actions. Clearly, supervising doesn't mean the responsibility or the accountability of all the activities. These activities will be realized from the numerous stakeholders, but there's the need for an orchestra leader that is responsible for the entire process.
Governance also means defining the rules, setting up a steering committee, and clarifying who has the power to decide and who has to participate in making decisions (other governance roles generally are: demand managers, project owners, top management, portfolio managers, and portfolio management office).
Communication means to define when, to whom, and what to communicate and report.
A key point in the strategy to actions connection: the management of the strategy to actions connection must be centralized in one structure. This will guarantee a focus and an overview of the entire picture that is impossible with de-centralization.
Portfolio implementation is related to the realization of the components selected and authorized. This activity is strictly related to project management and operations management. In this area, the focus is on “doing things right.” Project managers, program managers, and managers are doing their day-to-day job.
From this paper's point-of-view, it is important to consider how managers will manage during the implementation lifecycle, the expected changes from the original route defined at the beginning for the authorized components. This is because the route declared in the BC, in scope definition, and in the project management plan is the expected alignment of the component with the organization's Strategy. From that route, comes an expected output/outcome/benefit that will implement the strategy.
Often, managers that will implement components that are not involved at the beginning, when components are assessed, budgeted, connected with strategy, and selected. Their ability in “strategy-aligned decision making” during the route is limited from the fact that, often, they are treated as mere executors. And mere executors are not able to make right decisions.
A key point in the strategy to actions connection: involve components’ future managers as soon as possible and when not possible, provide all the information to support their understanding of the motivations and the strategic direction their components are supposed to serve.
For the scope of this paper, portfolio reporting means not only to report the status of single projects/program/operations, but also the status of the whole portfolio and, moreover, the status of achievement of the strategic objectives. In this interconnection, the bottom-up reporting activity usually done acquires an extreme importance for the organization.
Information like the deviation of planned versus actual duration of components, milestones missed, or resource availability, acquire a huge importance from a portfolio point-of-view. As program managers manage interdependencies between projects with common objectives, portfolio managers must manage and solve interdependency problems among heterogeneous components.
The reporting process should be uniform, continuous, and centralized. It should gather data from the process used to control projects/program/operations, adding aggregate data for a portfolio point-of-view. Portfolio reporting and adjustment should be done on a monthly basis.
A key point in the strategy to actions connection: portfolio reporting feeds several cockpits used to track the direction of the portfolio and its alignment with strategy. With no information, the navigation is blind.
Strategy and Portfolio Review
At a certain state of progress, strategy and portfolio review means to answer some important questions, such as: is the actual portfolio sufficiently supporting our strategy? Are there new components more aligned with our strategy that could replace old ones? Is our strategy still correct in the actual market conditions?
Instead of correctly driving our portfolio with small corrections, we are asking the organization if the portfolio and/or strategy are still adequate. This process is very complex and its application should be considered with caution. A more frequent strategy and portfolio review improves an organization's flexibility to market changes, but in contrast, increases management complexity and divergences For instance, some components cannot be terminated for several reasons (political, legal, relational, etc.), new components to include could use budget from a different “bucket,” and finally, to change an outcome of a component to better support a changed strategy could be not possible.
A key point in the strategy to actions connection: this area is where a cost-opportunity analysis is vital. It would be best to have the right strategy aligned with the best portfolio of components and pursue this direction until “the end.” Depending on the competitive market where the organization competes, the optimal lifecycle of the portfolio could vary.
Benefits realization is the verification of the real value realized by the components for the organization. This benefit could be, or not be, aligned with the strategic direction.
A key point in benefits realization is: how and when will the organization measure it? Who will measure it? How is it possible to insulate the positive effects produced by the component output from other beneficial effects?
The earlier that benefits are produced from an output/outcome, the better. This could happen during, immediately after, or far after the lifespan of a component and the whole portfolio. For sure, benefits management must start before an activity is initiated and continue after it has been delivered.
Often, benefits are declared, but not managed. In this, the use of programs can help. Years-long programs with multiple projects can be used as a spaceship transporting many benefits. The program manager is primarily responsible for benefits realization and having a long engagement will provide time and commitment to define, realize, and measure the benefits assigned and connected with strategy.
A key point in the strategy to actions connection: benefits production is the reason why organizations exist (Ward, Murray, & Daniel, 2004). Benefits to the organization are the reason why a strategy is defined and an action is done.
An adaptable Model
We cannot declare that there is an implementation of the 11 areas suitable for all organizations.
Taking for granted that all the areas can be developed at a different level of complexity/completeness, for the scope of this paper (define and maintain a tight connection of strategy to actions), we can say there is some critical point of balancing (CPB) in the model, as shown in Exhibit 6.
Exhibit 6: Critical point of balancing (CPB).
About the tuning of the model, some considerations from the author:
- The presence of a measurable strategy is necessary. Maybe during the first year of implementation, strategy could be derived from the actual ongoing component's portfolio, but in the following years, the process must be formalized and applied, taking advantage from the success of an initial bottom-up approach (Romano, 2014).
- Demand management and Ongoing components management are very time consuming. Demand management could be only external (clients, marketing) and then complex to define; only internal and then complex to manage; or both. Ongoing components management depends on the kind of projects the organization is running (short, medium, long; stoppable or not; with external vendors or not; clear in scope or not). For example, if components are longer than the portfolio review time, they have to be assessed two times or more.
- Components Assessment is a menace/opportunity. The more the BC is structured and complex, the more the prioritization and selection is precise; the less, the less. The complexity and the completeness of the BC should be tailored, taking care of the level of maturity of the organization, and the time available.
- Budgeting should be connected with the whole organization's budgeting system and with the performance audit. At the beginning, this will not happen and there will be a lot of resistance to change. The level of an organization's maturity dramatically increases with this “feature.”
- Prioritization and Selection should be based on a shared subjective/objective model. Even when the model is very simple, this process must be formal and model-based. Selection must be formalized and communicated.
- The level of Governance and Communication depends on the maturity of the organization. Centralization is crucial at any level of maturity.
- Doing projects on time, on budget, and on quality is the only way Portfolio Implementation will support the desired strategic objectives. Organizations cannot ignore project and operations management to succeed with their strategy. Maturity and training in these disciplines is crucial.
- Strategy and Portfolio Review is an area to handle with care. We are not talking about the constant control of the alignment of the portfolio with the original desired direction. We are talking about an important swerve in the strategy and/or in the portfolio. As already stated, this is more theoretical than applicable. When the market of the organization is very instable and product's lifecycle is short, so is the implementation of projects. This kind of flexibility is feasible. In all the other situations, it is better to focus on having a good strategy and a consequent good portfolio, and pursuing it.
- The best way to manage Benefits Realization control is with the use of programs. Otherwise (when not possible), there's the need of an organizational structure that is responsible for following the benefits lifecycle after the completion of components to support the strategic planning process. Sometimes, the finance department does this.
The tuning of the model must be done with attention, as the ultimate model applicable in any organization doesn't exist. What exists is a right process to follow and a significant number of good practices.
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© 2015, Luca Romano
Originally published as a part of the 2015 PMI Global Congress Proceedings – Orlando, Florida, USA