Project Management Institute

Strategically aligning your project portfolios

introducing a new paradigm in project portfolio management


In today’s extremely competitive marketplace, organizations are constantly being challenged to produce positive results that may come in the form of capturing a new market segment, increased growth or higher profitability. They are also facing increased government regulations requiring transparency of financial transactions to ensure they are demonstrating good stewardship of their investors’ funds. This increased pressure and scrutiny is forcing organizations to look for new methods and processes to make their operations more efficient and profitable. One management approach garnering a great deal attention to address these issues is the concept of portfolio management.

This management approach is defined as, “the centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing and controlling projects, programs and other related work, to achieve specific strategic business objectives” (PMI, 2006, p. 367). Research has shown that organizations, which are immature or lack portfolio management processes, have a higher probability of project failures and experience a multitude of problems, including:


- Ineffective, or non-existent, Go / No-Go criteria

- No Stage-Gate™ points for determining the continuation or halting of a project

- Misallocation of resources

- Lack of alignment with the organizations business strategy (Cooper, 2001, pp. 4-5)

The focus of this paper is on the last issue noted above, which is the lack of alignment between an organization’s business strategy and its portfolio management strategy. It is proposed that the lack of alignment between these strategies is a significant contributor to, if not the primary cause for, most of the problems identified above and if left unresolved will ultimately lead to the failure of the organization. To address this issue, the paper introduces a new paradigm to align an organizations business and project portfolio strategies, known as the Project Portfolio Alignment Model. This model, which is based on the principles defined by the Strategic Alignment Model (Henderson & Venkatraman, 1999), will illustrate how the application of such a model can help organizations achieve mutual alignment of strategies, and to determine which projects to select, defer, terminate or continue, to ensure its long term viability and success.

Project Portfolio Strategy Vs Business Strategy

The concepts of strategic management dates back to the early 1950’s, when Peter Drucker first proposed the theory of Management by Objectives (MBO), and Philip Selznick introduced the matching of an organization’s internal factors with the external environmental circumstances in 1957. About five years later, Alfred Chandler recognized and published the importance of a single all-encompassing organizational strategy (Wikipedia, 2007). Most of this earlier research focused specifically on the strategy for the organization; however, it didn’t necessarily address its alignment with the strategy for managing the project portfolio needed to support the organizational strategy.

Therefore, before we can understand how to align an organizations business strategy with its portfolio management strategy, we must first understand what these strategies are and what they entail. For purposes of this discussion, business strategy is defined as, “an ongoing process that assesses the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., a new social, financial, or political environment.”(Lamb, 1984, p. ix; Wikipedia, 2007; ¶2.

Generally speaking the organizational strategy is defined by the Board of Directors or in some cases the Chief Executive Officer (CEO) or the business owner depending on the size of the organization. Once the strategy is established, it will be up to the next lower level of management to execute and deliver the strategic goals and objectives.

Although the organizations’ business strategy defines what markets and industries it wants to be in and what it wants to achieve from an organizational standpoint; what it does not do is define the types of projects, which will be initiated and funded to help it achieve its long term strategy. Thus, the need for a project portfolio strategy. This strategy is defined as the ongoing process that assesses how projects are selected, staffed, managed, and monitored across the enterprise; the assessment of the estimated and actual return on investment for projects within the portfolio; the assessment of the organizations resources to ensure that the proper skills, competencies and organizational structure are in place to deliver the projects; and the frequent reassessment of the organizations project portfolio to ensure that projects being funded are supporting the overall business strategy throughout their entire lifecycle.

One of the most frequently asked questions on this topic is what comes first, the project portfolio strategy or the business strategy? Based on the definitions above, it is clear that the organization’s business strategy must drive its portfolio processes and the projects that it will ultimately invest in (Luftman, 1996). For example, if an organization’s strategy is to be the world’s leading technology company then it needs to be investing in projects that will be contributing to this strategy If the organization is funding projects that are outside of its core competencies and do not support it in achieving this goal then it is clear that the project portfolio strategy is incongruent with the business strategy. In turn, the organization has to be on guard and constantly evaluate and monitor its portfolio to ensure that it’s not directing funds towards projects that will not contribute to this goal.

It’s important to note that, not only can the organization have a strategy, but each of its business units could have their own strategies. In this situation, the burden falls upon the business unit owners to ensure that their strategy is not only consistent with and supports the overall organizational strategy, but those projects initiated within their unit or division are aligned with and support the overall strategy. This will help to ensure that the owners of the project portfolio for the business units are as closely aligned to their business strategy as possible. In turn, the business unit owners must be realistic in their expectations for alignment, and what they can expect to benefit from their current capabilities. The Portfolio Management leadership must be constantly aware of the changing business needs and make a joint effort with the business managers to create projects and portfolios of projects to address their changing and continually evolving business strategy.

Achieving a level of maturation where the project portfolio is aligned with, and fully supports, the business strategy is the ultimate goal; however, achieving this alignment is not as easy as it sounds. In fact, it can be a very complex and challenging task to achieve such an alignment. This is particularly true in organizations that are very immature in their management strategies and approaches. In this type of environment, projects that are initiated within the individual business units will generally be done on an ad hoc basis without any consideration of the systemic impact they will have on the rest of the organization. So how do we achieve this ideal environment and level of maturation? One method offered for consideration is the application of the Portfolio Alignment (PA) Model.

The Portfolio Alignment Model

Project Portfolio alignment has an explicitly directive and strategic goal in aligning existing projects to business strategies and ensuring continuous alignment so as to continue investing in the properly aligned projects and portfolios.

The Portfolio Alignment (PA) Model is based on the concepts and theories defined in the Strategic Alignment (SA) Model, which was first introduced by Dr. N Venkatraman and Dr. John C Henderson in 1999. (Wikipedia, 2007) The SA Model was focused primarily on the alignment between the business strategy and Information Technology (IT) strategy for an organization. Further research expanded upon this model and ultimately evolved into what is now known as the Strategic Alignment Maturity Model (Luftman, 2000).

In applying the concepts of the SA Model to project portfolio’s we have developed what is referred to as the Portfolio Alignment (PA) Model. Application of this model will provide organizations with a framework for aligning their business strategy with their project portfolio strategy; in turn helping them to eliminate their ad hoc process for selecting, initiating, funding, and monitoring their projects.

The PA Model (see Exhibit 1) consists of four domains: Business Strategy; Portfolio Strategy; Business Organization; and Portfolio Organization. The Business and Project Portfolio Strategy domains provide an external (client/customer facing) view, which describes to the client or end-user what the organization is in business to provide and the types of projects it is delivering to achieve this goal. The Business and Portfolio Organization domains, on the other hand, provide an internal (organizational infrastructure and administrative) view, that describes the organizational or governance structure, the skills, resources and tools needed to deliver the defined strategies. In turn, the PA Model is consistent with the SA Model in that the top level is referred to as “Strategic Integration” and the bottom level as “Operational Integration” (Henderson & Venkatraman, 1999, p 474).

Portfolio Alignment (PA) Model

Exhibit 1 – Portfolio Alignment (PA) Model

To provide a better understanding of the PA Model, a detailed definition for each of the four domains making up the model is provided below:

Business Domains

  • Business Strategy: As noted earlier, the business strategy defines the goals and objectives that the organization wants to achieve. For instance, in a product organization their business strategy may be to become the recognized global leader in cutting edge product development. This strategy may be achieved through innovations in new product invention, mass production, mass customization or continuous improvement of an existing product. In a services organization, it could be based on the introduction of a new/unique service concept or an invention. The business strategy is composed of three process groups (Luftman, 1996, pp. 25-27): Business Scope; Business Competencies; and Business Governance (see Exhibit 2).
    • Business Scope describes the products or services the organization provides to its stakeholders in response to market demands.
    • Business Competencies are the distinctive or unique competencies the organization has over its competitors in providing a particular product or service.
    • Business Governance defines the relationships an organization builds with its business partners to deliver its products and services and the guidelines/control mechanisms in place to achieve this partnership.
  • Business Organization: The culture of an organization is formed by its organization model, its people, and processes. This would include its vision, core values, core competencies and organization metrics. This could also be thought of, as the way an organization supports its Business groups and Portfolio Management groups to achieve their goals. We must clearly understand the corporate culture of an organization before aligning its various domains, to ensure that any identified cultural traits are managed properly. This domain consists of three process groups (Luftman, 1996, pp. 25-27): Business Infrastructure; Business Skills; and Business Processes (see Exhibit 2)
    • Business Infrastructure is the administration structure that allows the business to function.
    • Business Skills relates to the set of processes for hiring, training and retaining resources with requisite skills to increase organization capability in supporting their business strategy.
    • Business Processes refers to the development and streamlining of the organizations business processes that give it the unique capability to efficiently support their business strategies.

Portfolio Domains

Portfolio Strategy: As noted earlier, the Project Portfolio Strategy is defined as the ongoing process that assesses how projects are selected, staffed, managed, and monitored across the enterprise; the assessment of the estimated and actual return on investment for projects within the portfolio; the assessment of the organizations resources to ensure that the proper skills, competencies and organizational structure are in place to deliver the projects; and the frequent reassessment of the organizations project portfolio to ensure that projects being funded are supporting the overall business strategy throughout their entire lifecycle. This domain consists of three process groups, which includes Portfolio Competencies, Portfolio Scope and Portfolio Governance (see Exhibit 2).

  • Portfolio Scope includes the products or services the organization is willing to consider to provide to its stakeholders in response to market demands determine. Strategically, the portfolio scope defines the new project election criteria that meet the business strategy.
  • Portfolio Management Competencies are those competencies (including the skills, experience, certifications of the resources) that allow an organization to leverage its capabilities such as project and portfolio selection processes, communication systems, and mature project execution efficiencies are covered in this. Competencies include the skills, experience, certifications of the resources.
  • Portfolio Governance: The governance model that is applied to the project portfolios in the organization as well as which portfolios to acquire from other organizations such as in the case of a merger or acquisition.

1) Portfolio Organization: The Portfolio Organization domain includes the process groups of Portfolio Management Infrastructure, Portfolio Management Methodologies and Portfolio Management Skills (see Exhibit 2).

  • Portfolio Management Infrastructure presents opportunities for altering business capabilities, by providing supporting mechanisms to implement their Portfolio Strategies. The flexibility and scalability of an organizations’ portfolio management infrastructure provides it with a capability to adapt easily to its changing business environments. It includes all plant and machinery, information systems hardware, application software and all communication systems.
  • Portfolio Management Methodologies refers to the Project and Portfolio Management methodologies within an organization, which allows it to use consistent, dependable and mature processes to manage and support or lead its business. It also includes the Project and Portfolio Management tools, techniques, software and technology.
  • Portfolio Management Skills refers to the skills and knowledge capital of the resources required to support their Portfolio and Business Strategies. Gathering and sharing the intellectual capital are all part of this process group.

To ensure proper alignment, it’s important to have a strategic fit between a strategy domain and its corresponding organizational domain, as well as a functional fit between its strategies (strategic integration) and organizations (operational integration). These are designated by the double headed arrows showing linkages between the domains (see Exhibit 2).

Process Groups of the Portfolio Alignment (PA) Model

Exhibit 2 – Process Groups of the Portfolio Alignment (PA) Model

Assessing and Performing the Portfolio Alignment

Projects executed in any organization fall into each of the four domains mentioned above. The Business and Portfolio domains need to be in alignment for strategic alignment to occur. As market demands change with time, so do the strengths and weakness of each domain in an organization. These changes require constant analysis and monitoring of the strength and weaknesses of these domains. This continual monitoring allows organizations to insure continued alignment between Portfolios and Business.

The strengths of each domain can be evaluated and determined, at a given point in time, using any of the several available methods and approaches, including SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis, Ansoff’s Model, Three C’s (Corporation, Customer and Competition) Model and Porter’s Five Forces Model.”. Once the SWOT analysis has been completed, we can then determine how we want to achieve our goals over the next 3 to 5 years. This may be accomplished by planning with the business leaders to prioritize the business needs and the projects that need to be initiated to achieve the organizations goals.

To better understand the assessment and portfolio alignment process, let’s look at a specific example of how the PA Model may be applied. It should be noted that this process is similar to that outlined for cycling through the Strategic Alignment Model (Luftman, 1996, pp. 61-62).

Applying the PA Model - Example

Company L&M is a reputable, risk adverse electronics manufacturing company known for its high quality technology products. Over the past several years the company has not been growing due to its risk-averse nature. A research organization, Research 1, has recently developed a prototype of a pollen reader that can detect traces of up to 200 pollen varieties in the air in under 5 seconds. This product, although proven in technical trials, has yet to prove that there is a market for it and how it might be utilized in industry. As such it is considered to be a high risk project, with more ‘unknowns’ than ‘knowns’ at this point. However, recent focus group meetings have indicated that there is a high consumer demand for such a product. Based on this feedback, Research 1 approached L&M to be the exclusive manufacturer of the proposed Pollen Reader product.

L&M is uncertain as to whether this project fits into its strategic plan, so the CEO of L&M has asked the Portfolio Manager to apply the PA Model to determine whether it makes sense to do this or not.

In applying the PA Model, the portfolio manager (PtM) will follow a five step process, which is as follows:

STEP 1: The assessment team led by the PtM performs a SWOT (strength, weakness, opportunity and threat) assessment of the current state of the organization by interviewing selected senior business and portfolio executives and leaders. The PtM will also seek responses to where the organization is today, and where they intend the organization to be in 3 to 5 years. These results provide a clear indication of the strategic direction of the organization.

Responses to the SWOT analysis are prioritized in decreasing order of domain strength (i.e. strongest to weakest). For this example, we will assume that the Business Strategy was determined to be the strongest domain, which we will refer to as the Anchor point, and the Portfolio Strategy is the weakest, which we will refer to as the Pivot point, (see Exhibit 1). The Portfolio Manager will then select those projects in each domain that align with the business strategy for further funding during this assessment period. Alignment is achieved by changing their existing processes or creating new processes within the three process groups in the Portfolio Strategy domain to support the changes in their Business Strategy.

STEP 2: Projects in the Anchor Domain (Business Strategy) are not eligible for funding since it is the strongest domain. We defer the execution of these projects to a future date and may even consider cancelling some. There could be a few exceptions to the funding of maintenance projects, projects in their initiation and closing phases and detailed project planning. We will, use the strengths of the Anchor Domain to affect the Portfolio Strategy domain.

The current project portfolio strategy does not support acquiring new technology as it is perceived as high risk. The CEO of Company L&M explains the need to consider innovative product manufacturing to the Portfolio Manager. The Portfolio Manager aligns their underlying processes that roll up to their Portfolio Strategy to acquire the new technology of the pollen reader to support the change in their business strategy.

When changes to projects in the Pivot domain are made, corresponding changes must be made to projects in the Impact domain. Impact domain is the area that is being affected by the change to the domain pivot (Luftman, 1996, p 44). The funding for making such supporting changes in the Portfolio Organization domain, is of a secondary priority. Detailed project planning and detailed project implementation activities, maintaining/ supporting completed projects, and initiating new Training Programs can be undertaken.

Company L&M outsources the manufacture of the electronic gadgets to a Partner and trains their product team for manufacture, quality assurance and support. This action in the Portfolio Organization is aligned with the changes to the Portfolio Strategy.

STEP 3: As a result of the direct changes to the Portfolio Strategy, it has now become stronger, making it the Anchor domain and the Portfolio Organization, the Pivot. The intent is to fund projects in the pivot to strengthen it and bring it up to par with the other three domains. The number of outsourcing partners is increased to further align the Portfolio Organization with the Portfolio Strategy. The impact domain now is the Business Organization. To strengthen this domain, we fund projects such as training programs for their employees to take on new product support and quality assurance. Their business organization might need to be restructured to have a new department.

STEP 4: As a result of changes to the Portfolio Organization it has now become stronger, making it the anchor domain. In turn, the new Pivot Domain is the Business Organization. The organization is restructured to align it better with Portfolio Organization. This domain will be stronger after the changes.

STEP 5: We then consider the Business Organization as the anchor, and Business Strategy as the pivot. The impacted domain is the Portfolio Strategy. The Portfolio Manager now discusses with the CEO that with the new capabilities available in house, they would be able to support more high-risk prone projects. The feedback is now complete and one cycle has been made around the business and portfolio strategies and organizations in the PAM Model. Such alignment will now enable Company L&M to accept risky projects such as the pollen reader that ultimately will lead to more growth and capturing greater market share.

The PtM will then repeat Steps 1 through 5 to ensure that alignment is maintained. When we repeat the cycle and review and strengthen each domain we ensure the domains are in alignment and adjustments to the Portfolio and Business strategy can be made quickly based on the market conditions. It also helps to ensure that the Business and Portfolio organizations are nimble and adaptable to supporting the strategies.

Making business decisions based on market trends are no longer quite valid, particularly under rapid market changes. As soon as we recognize a trend, it changes. Living and staying abreast of the constantly changing environment is a reality and a requirement. Therefore it becomes extremely important that some long-term projects when delivered might not deliver the value originally planned at the start, due to changing market demands. We should, therefore, plan to have projects release value in iterations and in sync with the steps of the cycles discussed above. We can undertake scope that can be delivered in shorter time frames, and deliver incremental increases of functionality. This will allow us to better align each subsequent release of functionality to the business. This will also render the delivery more useful to the organization.

Such assessments are typically done at the end of each step, and before moving into the next step. The subsequent assessments need not be as elaborate as the very first assessment we perform in the organization. Project and Portfolio Managers are uniquely positioned to undertake all such assessments.

Benefits of Applying the Portfolio Alignment Model

It is not purported that the Portfolio Alignment Model is the panacea for achieving project success; however, it is proposed that some of the direct benefits of applying this model include, but are not limited to:

1.   Selecting only properly aligned projects to be included within the organization’s project portfolio

2.   Selecting only properly aligned portfolios in business units from the set of portfolios in the Enterprise

3.   Funding only those projects that properly align with the business strategy

4.   Allows periodic project reviews for strategic and operational integration and fit

5.   Allows projects to be executed, deferred or cancelled

6.   Avoids misaligned projects

7.   Proper alignment of projects within a portfolio

8.   Proper alignment of multiple portfolios within business units, in the Enterprise

9.   Proper alignment and assignment of resources to projects within the portfolio

10. Ensure the highest rate return on investment is being realized from those projects being funded

11. Model provides a framework for aligning projects to the business strategy eliminating the guess work and ad hoc processes that are occurring in immature organizations.

12. Ability to revise the project portfolio strategy quickly to align with the business strategy when market and client demands change

To ensure that resource investments are redirected to properly aligned projects we need to revisit individual projects and project portfolios periodically by applying the PA Model and validate against the changing strategic goals, before we pull the plug on ‘rogue’ projects or initiate new ones. Applying the PA Model can ensure individual projects and portfolios are in constant alignment with the business strategies and business organization throughout their life cycle.

Cooper, R. G., Edgett, S. J., & Kleinschmidt, E. J. (2001) Portfolio Management for New Products (2nd ed.), New York, NY :Perseus Publishing

Henderson, J. C. & Venkatraman, N. (1999) Strategic Alignment: Leveraging Information Technology for Transforming Organizations. IBM systems Journal, 38 (2 & 3)

Lamb, R., B. (1984). Competitive strategic management, Englewood Cliffs, NJ: Prentice-Hall

Luftman, J. (1996). Competing in the Information Age: Practical Applications of the Strategic Alignment Model, New York: Oxford University Press

Luftman, J. (2000 December) Assessing Business-IT Alignment Maturity, Communications of the Association of Information Systems. 4 (1)

Project Management Institute. (2006) The Standard for Portfolio Management, Newtown Square, PA: PMI Publications

Wikipedia search results for ‘Strategic Management’ accessed on 06/29/2007 at

© 2007, Meher C Lanka, PMP and Michael G Martin, PMP
Originally published as a part of 2007 PMI Global Congress Proceedings – Atlanta



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