The enterprise PMO as strategy execution office

Abstract

Research has documented the importance of strategy execution in creating corporate value. Yet time and money spent on strategic planning is wasted unless the organization builds a way to execute planned strategies. This paper uses the model from Seven Steps to Strategy Execution to show how process, people, projects, and performance integrate in a strategic project management office (PMO) to promote the “execution environment,” in which moving the organization towards its strategic goals becomes allied with everyday task completion.

Introduction

A business is presented with new opportunities and challenges each day; without a game plan for prioritizing what to work on and invest in, precious time, energy, and money can be wasted. This is why organizations invest time in developing strategic plans. Strategy reflects an organization's awareness of its competitors; its markets; the political and regulatory environment; its future trajectory; and its present capacities. It integrates the vision of corporate leaders and stakeholders with the plans for making that vision a reality over time.

For many years, a disconnect has existed between the development of strategic plans and daily work that would make those plans a reality. This disconnect has been explored by many management thinkers; in particular, the developers of the balanced scorecard have produced research showing that up to 90% of corporate strategies are never implemented (Kaplan & Norton, 2001). One reason for this is found in a survey conducted by the Society for Human Resource Management and the Balanced Scorecard Collaborative. Seventy-three percent of polled organizations said they had a clearly articulated strategic direction, but only 44% 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, p. ¶4). 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 to the solution. 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 balanced scorecard creators call the “strategic initiatives”) become important to a company's strategic thinkers.

For those of us versed in project management, it has long been somewhat obvious that project portfolio management provides the necessary bridge between the development of strategic plans and the execution of project plans (see Exhibit 1). Yet, as we know, the link between strategy and projects has not, until recently, been obvious to senior management who tended to view project management as a tactical tool. Too often, projects have been chartered with little or no connection to the corporate strategy formulated by top management. One reason for this has been the lack of an organizational entity with the responsibility to map strategy to projects and to monitor projects and portfolios to ensure that they continue to address strategic initiatives, even as these initiatives change over time.

Exhibit 1. Portfolio Management Serves As the Bridge Between Strategy and Execution

The Strategic PMO

Enter the enterprise-level, or strategic, project management office (PMO). The PMO serves as the critical link between executive vision and the work of the enterprise. By providing a standard organizational methodology for planning, executing, staffing, prioritizing, and learning from all the projects that comprise today's organization, the PMO gives organizational life a coherence that has long been lacking.

A strategic PMO goes beyond the traditional project management categories, with an expanded role that links strategic objectives to individual projects and portfolios.

In this paper, we will discuss those responsibilities and functions of the PMO that specifically relate to its integrative and strategic role in the organization:

• Linking corporate strategy to programs and projects. The PMO provides the organizational home where the strategy document produced by senior management can be converted it into the projects and programs that carry out that strategy.
• Portfolio management, including project selection and prioritization, manages the interdependencies between and among projects that can only be seen from the perspective of a strategic PMO.
• The strategic PMO, by serving as a central clearinghouse for business data related to high-value projects and project personnel, allows the organization to measure the performance of people, projects, programs, and the organization as a whole.
• The strategic PMO is integrated with the roles and responsibilities of other staff organizations within the corporation and serves as a kind of nerve center where major initiatives of all types can interface.

In short, the purpose or mission of a strategic PMO should be:

• To ensure that the enterprise invests in the best set of projects and programs and realizes the most benefits possible from these investments;
• To provide an organizational focus on improving the management of projects, programs, and portfolios;
• To optimize the capability and use of scarce resources; and
• To raise strategic issues to the highest levels of the organization in order to facilitate effective decision making (Crawford & Cabanis-Brewin, 2010).

The Link Between Strategy and Projects

On a consulting engagement to help an organization improve its project management practices, the author had been speaking to a group of senior managers about the connection between corporate strategy and what was happening “in the trenches” with their real projects. After about an hour, a group manager tentatively raised his hand and asked, “So there's supposed to be a direct linkage between strategy and projects?”

The concept of having someone in the organization (other than the marketing department) look at the strategic objectives with respect to ongoing projects is still new in many organizations, or, if not new, then various initiatives have tried to align strategies and activities, with limited success.

Ideally, project activities should be at the bottom of a “waterfall” in which corporate strategy is expressed as a set of long-term and short-term goals, and each of these goals is operationalized as a project or program designed to carry out the strategic rationale. Furthermore, the setting of organizational priorities is expressed, on the project level, as a set of metrics by which executives can determine if the project activities are in fact moving the company toward the desired goal. These metrics, feeding into the project prioritization system and into the reward system for project team members complete the feedback loop, making the organization coherent: Project team members are rewarded for behaviors that make projects serve the overarching goals; company strategy becomes everyone's business instead of the yearly intellectual playground of a top few.

By contrast, in the past, projects were insulated by many layers of management from the strategic rationale, with the result that work was undertaken on a departmental level, which either failed to advance key strategic initiatives, or in some cases, was actually detrimental. Project managers are familiar with the frustrating case of the project that is delivered on time, on budget, and to specifications but is a failure in the larger organizational sense because it is irrelevant to the corporate mission or to the competitive stance of the company. Linking strategy directly to the projects that are organized to carry it out eliminates this frustration—and saves a good deal of time and money as well. We believed this intuitively, but did not rely on intuition alone. A series of studies carried out from 2005 to 2010 by PM Solutions’ research arm showed a strong linkage between aligning strategy with projects, and excellent organizational performance (Center for Business Practices [CBP], 2005). In addition, the research series has provided us with proof of the value of an enterprise PMO as the seat of strategy execution.

The Strategy and Projects Research Study

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 (now PM Solutions Research) conducted a survey in November 2005, which targeted a broad spectrum of organizations. Representatives of 87 leading companies responded. The results included the following: companies using identified “best practices” most consistently also had the highest rates of project success; in addition, they reported better organizational performance, both financially and in terms of other measures such as customer satisfaction.

The Strategy & Projects report (CBP, 2000) 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 including the following elements:

1. Governance,
2. Strategy management,
3. Project portfolio management,
4. Program/project management,
5. Structure,
6. Information technology,
7. People, and
8. 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 organizations that exhibit these practices are, indeed, high performing, to confirm whether 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.

Next, respondents rated their organizational performance. 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. These results are displayed in Exhibit 2.

Exhibit 2. Performance Indicators in Strategy and Projects Study

The left bar in each set indicates the frequency with which that metric was reported by the top performers in the survey; the 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.

The real “meat” of the findings was in comparing whether the frequent and consistent use of the best practices correlated to organizational performance—and it did. Across the board, those organizations who ranked as top performers were also the ones who reported the frequent and consistent use of practices for the alignment of projects with strategy. In particular, high-performing organizations were found to incorporate the following practices with regard to organizational structure:

• A strategic (enterprise) PMO (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.

These findings seemed to secure a place for the PMO at the highest level of the organization. Yet many PMOs were still confined to divisional roles; it seemed that, for the true power of project and program management to transform organizations, executives, and PMO leaders would have to have a clearer roadmap connecting the disparate parts of the organization into a unified system for executing strategy through projects.

The “Seven Steps” Model: A Strategy and Projects Framework

To create such a roadmap, the eight process areas identified in the Strategy & Projects (CBP, 2000) research were later refined into a framework for integrating project management principles with strategic management across the enterprise: the results of this framework development were published as Seven Steps to Strategy Execution (Crawford, Cabanis-Brewin, & Pennypacker, 2007). Because the first process area, governance, was felt to be central to all other process improvement issues, it was singled out as the foundation on which the “seven steps” could be built.

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.

Perhaps not surprisingly, the most often-used governance practice by high-performing organizations in the study was having a well-defined strategy. Additionally:

• 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; conversely, using project and program performance feedback to manage strategy execution is also a best practice engaged in by high-performing companies. That using these practices also makes the difference between high performance on the enterprise level, and just getting by, can be seen in Exhibit 2.

So, beginning with a sound system of governance, the high-performing organization:

1. Adopts a strategic plan;
2. Puts in place a system of portfolio management;
3. Optimizes its project and program management practice;
4. Puts in place the organizational structure that makes it possible to manage the strategy – portfolio – project management waterfall: the PMO;
5. Strives to implement the changes to organizational culture that go along with better strategic management;
6. Invests in the people who make projects, programs and portfolios work;
7. Puts in place a coherent system of performance measurement that will help; and decision makers know which strategies and initiatives are succeeding, and which need to be tweaked or abandoned.

Underlying this seven-step framework is the important facilitative role of IT. Among the top 10 best practices used by high performing companies in the Strategy & Projects (CBP, 2000) research, four were related to the use of IT for improving organizational integration and communication:

• 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.
• IT tools provide information on the availability of resources.
• IT tools provide the capability to monitor and control risks, issues, and financials across portfolios.

In particular, IT supports the collection of performance data that allows executives to make timely, fact-based decisions about the strategic projects in the portfolio, which completes the loop of cause and effect that began, at the head of the waterfall, with the strategic plan. The management of IT to support projects, programs and the portfolio must be centralized in the PMO if IT is to optimize its supportive role in strategy execution.

The good news is that over the past decade, the number of organizations establishing strategic PMOs to provide a base for integrating the organization in the way described by the seven-steps model, has skyrocketed (CBP, 2008; PM Solutions Research, 2010).

The State of the PMO

As early as 2000, The Gartner Group (now Gartner, Inc.) identified five key roles for a PMO, all of which are most effectively carried out at the enterprise level:

• Methodology center: Developer, documenter, and repository of a standard methodology (a consistent set of tools and processes for projects).
• Resource evaluator: Based on experience from previous projects, the PMO can validate business assumptions about projects as to people, costs, and time; also a source of information on cross-functional project resource conflicts or synergies.
• Project planner: a competency center and library for previous project plans.
• Project management consulting center: providing a seat of governing responsibility for project management; perhaps staffing projects with project managers or deploying them as consultants.
• Project review and analysis center: a knowledge management center where information on project goals, budgets, progress and history are stored—both during the project life cycle and after, in the form of lessons learned (Light & Berg, 2000).

More research that is recent has shown that, in addition to all these roles and functions, the strategic PMO has taken on responsibilities once reserved for the C-level or set aside for the HR department. The majority of enterprise-level PMOs now play a key role in recruiting, hiring, training, and developing their own personnel and in doing performance reviews. They also have taken ownership of the project portfolio management process, putting the PMO at the nexus of strategy and tasks. In addition, the pressure to show the value added by the various functions, from IT to HR to PM, has led the PMO to take the lead in refining benefits realization processes, and implementing performance measurement frameworks (PM Solutions Research, 2010).

In a similar vein, as PMOs have spread, research and benchmarking on effective PMO practices and structure have proliferated, with varying levels of accuracy and quality. By 2004, IT PMOs were beginning to take firm hold, but with mixed results; studies by CIO Magazine and Forrester Research showed that, while PMOs were being broadly implemented, the results were unclear (Hoffman, 2003; CIO Insight, 2004). Still, by 2007, when we initiated our own broad survey of the status of PMOs, the burning question was not, “What is a PMO?” or “Why do we need one?” but “What kind of PMO do we need? and “How can we objectively measure the value it brings to the organization?” The results were astonishing: for example, in our Value of Project Management (CBP, 2000) study, only 47% of the respondents had implemented a project office of any type (CBP, 2000). By 2006, 77% of the respondents to our Project Management: The State of the Industry (CBP, 2008) survey had implemented PMOs; of those, 35% had an enterprise-level (or “strategic”) PMO (CBP, 2006). In 2007, 54% of the respondents reported having an enterprise-level PMO in place (CBP, 2008). Even factoring in the differing research objectives of these studies, the upward trend is unmistakable, both in sheer numbers of PMOs and in the rising organizational clout.

But, most important, those strategic PMOs that had been in place for four years or longer seemed to making a definite difference in organizational performance. The results suggested that merely implementing a PMO is not a panacea. Instead, PMO maturity makes a difference to the organization. As PMOs become more mature, our data suggests, organizational success metrics improve. In addition, the mature PMO takes on more roles—in portfolio management, in people management, and in performance management, further elevating its value to the organization.

The Impact of the Mature Strategic PMO.

There is a strong correlation between organizational performance and the maturity of PMOs. Organizations with PMOs showed significant improvement at each level of PMO maturity; that is, for each incremental improvement in process maturity, there was a corresponding impact on organizational performance measures, including financial performance and customer satisfaction:

• Overall performance improvement of 6.2% from PMO Level 1 to Level 2;
• Overall performance improvement 14.6% from PMO Level 2 to Level 3; and
• Overall performance improvement 10.5% from PMO Level 3 to Level 4.

As PMOs mature, they are significantly better at meeting critical success factors, including having effective sponsorship, accountability, competent staff, quality leadership, and demonstrated value. They have significantly fewer challenges, including stakeholder acceptance, appropriate funding, demonstration of value, role clarification, conflicting authority, and consistent application of processes.

And—gratifying since we advocated this in our book on the HR aspects of managing by projects (Crawford & Cabanis-Brewin, 2005)—as PMOs mature, they are more likely to staff professional planners, schedulers, and controllers:

• Level 2 PMOs have 14% more planners, schedulers, and controllers than Level 1 PMOs;
• Level 3 PMOs have 24% more planners, schedulers, and controllers than Level 2 PMOs; and
• Level 4 PMOs have 70% more planners, schedulers, and controllers than Level 3 PMOs.

Across the board, for respondents to the State of the PMO 2007 (CBP, 2008) study, high-performing organizations are more likely to have an enterprise PMO (65.8% of high-performing organizations have EPMOs compared to only 48.6% of low-performing organizations). The PMOs in high-performing organizations have been in place 29% longer (4.5 years) than in low-performing organizations (3.5 years). High-performing companies have PMOs that perform a wider variety of functions, including strategy formulation, portfolio risk management, benefits realization analysis, contract preparation, outsourcing, project opportunity process development, resource assignment process development, management of a staff of project planners/controllers and business relationship managers, and resource identification and optimization (CBP, 2008).

Exhibit 3 lists some of the wide variety of services that are delivered by today's PMOs.

Exhibit 3. Common Enterprise-level PMO Services

Tough Times Showcase the Strategic PMO

In 2008–2009, the strategic PMO faced unprecedented stresses: a global economic downturn left many companies reeling and scrambling for ways to cut costs. Yet our best-in-class PMOs continue to thrive, because they allow companies to make the most of slim resources; streamlining the portfolio, accurately forecasting resource availability, and allowing changes in strategic focus necessitated by economic factors to be seamlessly carried out, because the project portfolio management processes add nimbleness to the organization. And, the PMO received an unexpected boost from an unlikely quarter in 2009, when the U.S. Federal Government implemented the American Recovery and Reinvestment Act, along with unprecedented focus on excellent program management and transparency of results. Suddenly, Federal agencies from NOAA to the USDA wanted strategic PMOs! How this will play out over the long term is uncertain at this writing; but it is a positive note both for the status of project management and for the beleaguered taxpayer.

In 2010, we revisited The State of the PMO (PM Solutions Research, 2010) research study to add more data points to the trending. The new results surprised even our researchers. The findings of this research described an organizational entity whose time has come; compared with research from previous years, the PMOs responding to the survey have expanded their influence and moved up the organizational ladder. Of the companies in the study, 74% are large firms with over US$100 million in revenues; that 15% of the individuals responding to the survey are at the vice president level or above in these organizations tells us something about the importance and visibility of the new PMO. Well over half of PMOs now report to the highest levels of executive management, with 29% reporting to an executive vice president and another 27% reporting to the C-level. Obviously, the days when project management did not have the ear of the executive are waning (PM Solutions Research, 2010).

Most gratifying, the PMO's contributions are now valued by executives: 64% say they have executive sponsors who appreciate their strategic value. For 83% of respondents, the value added by the PMO goes largely unquestioned, and among mature PMOs that figure rises to 94%. Of course, this trust has been hard-won. PMOs are highly regarded because they deliver value and continuously improve processes. Over a third of responding PMOs (34%) rate themselves at a maturity level of 3 or above, with 9% rating themselves at Levels 4 or 5 (PM Solutions Research, 2010).

Our research clearly demonstrates that the PMO is fast becoming an organizational fixture that provides significant value. One clue to the strategy execution role that PMOs play today is the list of high-value strategic tasks that PMOs engage in: PMOs track portfolio performance (72%) and 36% even participate in portfolio strategy formulation. The PMO is looked to as a resource for understanding how the company is doing: 67% manage a portfolio dashboard or scoreboard (PM Solutions Research, 2010).

Nevertheless, those PMOs who continue to struggle to get and keep funding or to carve out a place at the strategy formulation table do so because they have not developed a performance measurement system that can demonstrate their value, in terms meaningful to executives. For PMOs that hope to advance in the organization, such a measurement system is a requirement.

Performance Measurement and the PMO: Closing the Information Loop

In our Strategy & Projects (CBP, 2005) research, three of the top 10 best practices for aligning projects and strategy were related to the measurement of performance: of projects, of the portfolio as a whole, and of the people who make it all happen:

• 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.

Measurement provides management with the information necessary to make intelligent decisions. It can tell you how well you are doing; if you are you meeting your goals; if your customers are satisfied; if your processes are effective; if improvements are necessary and, if so, in what parts of the organization.

A structured measurement program allows an organization to identify areas for performance improvement, benchmark against industry/competitors, set targets, identify trends for forecasting and planning, evaluate the effectiveness of changes, determine the impact of project management and tell a story about your organization's performance.

For companies that depend on the execution of projects for business success, project portfolio tracking is all about measurement. When accurate data is available, strategic decision makers can decide where to invest more, or less, effort. The data used to value each project must be accurate and current.

There are numerous ways to determine the performance and success of your programs and measures necessary to one organization may not apply to another. That is why it's important to plan for measurement and to clearly understand the needs and goals of the organization in determining what to measure and why. The organization should seek to balance and streamline its measurement activities to insure the measures it chooses will result in strategic organization-level improvements.

The reason for measuring should always be about goals and objectives. “Value” is in the eye of the beholder: so the first step is to identify what's most important to the organization. When strategy is clear, this should be relatively easy. Common goals and objectives to measure include:

• Reducing costs,
• Improving timing,
• Improving quality, and
• Improving productivity.

Once you start measuring performance, you can begin to start measuring value, and nothing can be more important for PMO leadership. For example, improving schedule performance for all your projects over a period of a year can be translated into improvement in average project cycle time, which can be translated into improvement in time to market, resulting in the number of new products your organization produces, which can add significant value to your organization through increased market share. Value measures, therefore, provide information on the performance of the organization rather than the performance of a project. They must be collected over a longer period of time (no more than quarterly) and over your portfolio of projects. This example also demonstrates how good measures should align with organizational objectives.

When schedule performance has been linked to increased market share, the value of training project personnel in scheduling becomes calculable. In this same way, it is possible to work backward from any strategic goal, drilling down to those measurable tasks that have an impact on goal achievement, and then developing training plans that directly affect those tasks. Using a measurement program of this type, the PMO will always have a “hard” answer ready to the question: Does this investment pay off? And, by how much?

Once you determine what to measure and why, the next question is, “Will the data for this measure be easily accessible?” The electronic capture of data must become a part of normal business operations. For example, time stamps on electronic documents or actuals reported through project plans and financial systems are captured through standard systems. This type of data collection reduces the amount of effort required to gather data and ensures a greater level of compliance. It also allows for ongoing access to information, allowing for the periodic reporting of metrics from the systems without the need for mobilizing a search team to track down information.

A Model for Performance Measurement

The PEMARI model established by PM Solutions has been proven to work well in dozens of organizations. This model integrates a number of processes:

• Planning: a process for understanding key success factors, identifying stakeholders and roles and responsibilities, identifying performance management goals, and developing a program plan.
• Establishing metrics: a process for identifying and selecting performance measures, developing measurement scorecards (high-level measures defined at the governance level; specific metrics that roll up into these identified at the departmental or program level).
• Measurement: a process for planning for data collection, including data source and information technology required; collecting data and ensuring data quality (a joint responsibility of IT and the strategic PMO as owner of the portfolio processes).
• Analysis: a process for converting data into performance information and knowledge; analyzing and validating results; performing benchmarking and comparative analysis (a joint responsibility of IT and the strategic project management organization [SPMO]).
• Reporting: a process for developing a communications plan and communicating performance results to stakeholders (a responsibility of internal communications).
• Improvement: a process for assessing performance management practices, learning from feedback and lessons learned, and implementing improvements to those practices (a joint responsibility of the SPMO as portfolio owner, and executives responsible for governance) (Crawford, 2008).

Measurement, like any organizational improvement initiative, cannot be done just once. Having baseline PMO performance, you will have to iteratively measure in order to develop trends. Regular communication will maintain senior management and employee involvement—a must if strategies are to be executed effectively.