Project Management Institute

Linking portfolio, program, and projects to business strategy

a way to gain competitive advantage in these turbulent times

Abstract

During the last ten years, many organizations around the world have been dealing with linking portfolio, program, and projects to business strategy in order to get the best value from their strategy implementation. However, most of them have only defined the link as a criterion to selecting right projects, forgetting to link strategy throughout the whole project development life cycle (selection, prioritization, resource-balancing, initiating, planning, execution, controlling and closing), and losing the benefits of competitive advantage that produce this complete linking.

This presentation will show a model that integrates portfolio, program, and projects with business strategy, ensuring that most organizations implement their strategy to achieve the best benefits from them. The Project Management Institute's Standard for Portfolio Management (Project Management Institute [PMI], 2008c), Standard for Program Management (PMI, 2008d), and Organizational Project Management Maturity Model (OPM3®) (PMI, 2008b) are considered in this integrated model, as are strategies and models from Kaplan and Norton (2008), Porter (1998), Mintzberg (1998), and other well-known gurus of business strategy management.

The model organizes portfolios classifying programs and projects as strategic (corporate benefit), tactical (business unit benefit), and subsistent (necessary for continuing business operations). Also, the model evaluates each project's alignment with business objectives and strategies and, at the same time, defines the benefits (e.g., ROI, client loyalty, market growth, cost saving, and social and environmental impact) that any project and program can achieve to ensure predictable business results. In general, this model will allow organizations to move quickly in the business arena during this economically turbulent time, gaining competitive advantage through the right implementation of portfolio, program, and project strategy and the creation of successful project spirit to succeed in this challenge.

Environment of Project Management and Business Strategy

Organizations all around the world in a variety of different sectors—including IT, banking, energy, mining, oil, and construction, among others—have been working to link their strategy with the way in which they manage projects. In the process, they are encountering some of the following issues:

  • Most organizations do not have a structured business strategy with specific business objectives for the short-, middle-, and long-term.
  • Most organizations that have a business strategy cannot execute it well. The functional area in charge of tracking it is not familiar with the project environment.
  • Some projects have a weak alignment with business strategy because most of the projects of the portfolio were conceived to attend urgencies in the operations or to attend specific requirements of specific senior managers.
  • Organizations that link their projects with their business strategy do so at the formulation of the project, but do not continue to verify it during the rest of the project life cycle, which is especially necessary after any change.
  • Most project managers assume that the project they are managing is fully linked with the strategy. However, in some cases this results in poor project benefits by the time it is executed;
  • There is interrelation among people involved in strategy definition and strategy execution.
  • In some organizations, project teams are not exposed to business strategy, and in most cases do not know it.
  • Although there are many models for business strategy (e.g., Kaplan and Norton, Porter), few of them get into defining project initiatives.
  • There is no balance in the project portfolio based on the alignment with business strategy. This results in a weak overall strategy execution

Despite all of these issues, there are plenty of opportunities to work on strengthening the link between project management and business strategy. This paper will discuss these opportunities.

Rethinking the Concept of Strategy and Trends in the Business Arena

The definition of “strategy” was not born in modern times; it first developed in the ancient world, although at that time it was more focused on the means of waging war to obtain victory, as described in the art of the war of Sun Tzu (400 B.C). Since that time, and especially in the last 50 years, the fundamentals of strategy have undergone a huge improvement in the business arena.

So what is the definition of “strategy” as it applies to business? It is a plan, an attitude, a means of “winning” a business challenge. In general, there is no a unique definition. According to Wikipedia, “strategy” is a plan of action designed to achieve a particular goal; for Tse and Olsen (1999) it is how to better deal with competition; for Porter it is how to win competitive advantage, as explained by his three generic strategies (cost leadership, differentiation, focus). For Thompson and Strickland (1995), it is advantages that provide organizations with the benefit that will sustain them when attracting customers and defending themselves against competitive forces. For Wright, Pringle, and Kroll (1992), “strategy” means top management plans to achieve outcomes that are consistent with the organization's mission and goals. Actually, although many authors have written about strategy, in my opinion those who come closest to the best definition are Mintzberg, Ahlstrand, and Lampel (1998), who rethought the concept and defined “strategy” as the 5Ps (Position with some products in specific markets, Plan a course of action, Pattern of behavior, Perspective, and Ploy). In summary, we can say that business strategy is about business success, and is not just a plan.

Linking Strategy Throughout the Entire Project Life Cycle

Most companies who have a well-defined strategy try to link their strategy with their projects. Most, however, do this only at the initiation of the project (project selection) or during the formulation period for budget approval. Nevertheless, it is necessary that the linking be ensured during the entire project life cycle, which means during initiation, planning, executing, controlling, and closing the project. Every change in the strategy must be communicated to the project, and every change in the project must be analyzed in terms of its impact on the strategy (business results).

During the planning of the project, we must articulate all of the scope, time, cost, quality, communication, risks, procurement, and human resources to achieve the business results, while at the same time defining the criteria for project success in terms of business results, and restrictions such as time, cost, and quality, as well as any other relevant components. In general, a project strategy must be established at this stage to gain competitive advantage through the successful implementation of this project. A new baseline will be established as “the business value baseline.”

During the project execution, decisions must be made in terms of business objectives; this means that if it is necessary to add some scope to guarantee a better business success, it must be done even if the project increases cost or time. The sense of achieving business results must be translated to the project team and stakeholders, developing an active spirit within the team.

During the monitoring and control, communications must be submitted that present the project progress in terms of business results and issues, and risks should be communicated to show their impact on the specific business objectives of the project and in general on the overall business strategy.

During the closing, an evaluation about the business benefits achieved must be executed and lessons learned about the process must be recorded and communicated. At this point, the project will be considered successful if it achieves not only scope, time, and cost, but also the most important element, “business value.”

In general, we would say that linking project management with strategy occurs at the project level as well as at the program and at the portfolio level. In terms of a portfolio, it is typical to see projects executed only for the purpose of satisfying urgencies or interests of some senior managers, and not strictly executed to achieve business results. If you analyze where most of the budget of the organization is invested, you will find that a great percentage of it is invested not in strategic business initiatives, but in the subsistence of the business or in unnecessary initiatives.

A Model for Linking Business Strategy to Portfolio, Program, and Projects

A model for linking strategy and projects must have already defined specific categories about strategy in order to try to cover broadly the general business strategy. It is important to ensure that strategic objectives have been defined with a complete analysis of the strategy, as is done with models such as the Balanced Scorecard of Kaplan and Norton (2008).

Having performed an analysis of the diverse components of business strategies of many authors, I present my categories:

  • Operational Efficiency – Measures how efficient the organization is in terms of their operations. It comprises projects of automation, cost-saving programs, organizational change, certification and process improvement, and human resource development.
  • Operational Production and Stability – Comprises the production of goods and services of the organization without interruptions such as shutdowns. It comprises the stability of plant operations, IT operations, and normal daily production.
  • Growth – Refers to how much is invested in growing a business and how important this investment is for the company. It comprises the increase of channels or branches, both national and international, the market share, and the increase in profits and sales of the organizations.
  • Customer Satisfaction – Measures the level of loyalty and satisfaction from clients with regard to the products and services of the company.
  • Differentiation – Measures the level of differentiation that a company has over others—for example, the level of product advantage or innovation (radical changes in its products and services).
  • Law Compliance – Measures the level of compliance of the organizations with the law. Usually all organizations are requested to comply with regulatory requirements from government institutions.
  • Sustainable Development – Measures the level of sustainable development initiatives that companies are implementing.

All organizations need to define the categories that they will address as part of their strategy. Almost all categories apply to many organizations, and selecting from this list would be an easy way to determine the specific strategic objectives, as shown in Exhibit 1.

Strategic Objectives—Categories and Examples

Exhibit 1: Strategic Objectives—Categories and Examples.

For many companies, having strategic objectives defined as shown in Exhibit 1 (in particular, the examples of strategic objectives) would mean having the business strategy completed; however, for project management professionals, strategy cannot be completed until the specific projects for achieving those strategic objectives have been defined.

It is important that for every strategic objective is defined which projects will permit to achieve it. In my opinion considering the aggressiveness of an organization would be preferable to define programs to satisfy specific strategic objectives. Once we have finished defining all projects and programs, a Project & Program Selection must be executed in order to select the right projects for the organization; in this case Exhibit 2 show the linking of programs and projects with the business strategy in order that this linking be considered as an important criteria for the selection process.

Linking project management with business strategy

Exhibit 2: Linking project management with business strategy.

After the selection process has been applied, a portfolio balance must be executed in order to guarantee that the project selection be balanced with the availability of financial resources (operational and capital) and man hours. Before the portfolio of projects is finalized, it is very important that the portfolio be balanced in terms of the strategy, and this means that the project portfolio must satisfy the business strategy based on its priority as indicated by the weighting column of Exhibit 1. To see the Portfolio see Exhibit 2.

In Exhibit 2, the column Focus represents a project category that shows the orientation of the project, which is strategic, tactical and subsistence. The explanation of this category is:

  • Strategic – These are projects that are of general benefit to the organization (critical for business success), usually involve the participation of many functional areas, and most of the time are high-risk and involve major investments.
  • Subsistent – These are projects that must be done in order to continue business operations, are usually requested from government entities, or are critically needed to fix critical interruptions (shutdown and others) in the operations.
  • Tactical – These are projects of specific interest to one or more functional areas, but are not of general benefit to the organization.

Every project must be classified as strategic, subsistent, or tactical, and at the same time must be aligned with the business strategy, especially because some projects would contribute to the achievement of more than one business strategy.

Having this classification is very important because strategic departments of the organization and senior managers could continually track the performance of the project portfolio of strategic projects. Usually organizations that track strategic projects favor the linking of project management and business strategy as it is shown in Exhibit 2.

Importantly, we may conclude that the definition of a well-suited strategy, consisting of most of the above-mentioned categories, represent competitive advantage. In these current economically turbulent times, is imperative to invest in strategy and how it links to the project portfolio. Doing so will raise organizations to the highest competitive levels.

Lessons Learned and Conclusions

  • Project managers need to change their focus from project schedules, cost, and quality to achieving business goals. However, this does not mean that time, cost, and quality are no longer considered criteria for project success, but that achieving business strategy objectives involves more than the restrictions of project schedules, cost, and quality.
  • Rethink the strategy. Business strategy is about business success, and is not just a plan.
  • Linking strategy and project management is a two-way process: strategy influences the project portfolio, and the execution of the project portfolio influences the strategy.
  • There is no single model to manage strategy. Although we can use any of dozens of strategies, we must adapt the strategy to make certain that projects satisfy strategic objectives and represent the link between project management and strategy.
  • There is an opportunity to create a strategic maturity model that can be integrated to OPM3® in order to encourage organizations to link their strategy with project management.
  • Invest in strategy and its link with the project portfolio.

References

Kaplan, R. S., & Norton, D. P. (2008). The execution premium: Integrating strategy and operations to achieve competitive advantages. Boston: Harvard Business School Press.

Mintzberg, H., Lampel, J., & Ahlstrand, B. (1998). Strategy safari: A guided tour through the wilds of strategic management. New York: Free Press.

Porter, M.E. (1998). Competitive strategies: Techniques for analyzing industries and competitors. New York, NY: The Free Press.

Project Management Institute. (2008a). A guide to the project management body of knowledge (PMBOK® guide)—Fourth Edition. Newtown Square, PA: Project Management Institute

Project Management Institute. (2008b). Organizational project management maturity model (OPM3®): knowledge foundation—Second edition. Newtown Square, PA: Author.

Project Management Institute. (2008c). The standard for portfolio management—Second edition. Newtown Square, PA: Author.

Project Management Institute. (2008d). The standard for program management—Second edition. Newtown Square, PA: Author.

Shenhar, A. J., Milosevic, D., Dvir, D., & Thamhain, H. (2007). Linking project management to business strategy. Newtown Square, PA: Project Management Institute.

Thompson, A. A., & Strickland, A. J. (1995). Crafting and implementing strategy. Illinois: Richard D. Irwin.

Tse, C.-Y., & Olsen, M. (1999). Strategic management. In B. Brotherton, ed., The handbook of contemporary hospitality management research (351-374). Hoboken, NJ: Wiley.

Tzu, S. (6th century B.C.E). The art of the war.

Volberda, H. W. (2001). Rethinking strategy. London: Sage.

Wright, P., Pringle, C. D., Kroll, M. J., & Parnel, J. A. (1992). Strategic management text and cases. London: Allyn & Bacon.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2010, Victor Anyosa
Originally published as a part of 2010 PMI Global Congress Proceedings – Melbourne, Australia

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