Project Management Institute

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Executives must align projects with strategy—but nobody said it would be easy.

every organization needs a vision and a project portfolio to support it. Executives still seem to be struggling with this reality, however. In a global survey of project management office (PMO) leaders by Business Improvement Architects, 68 percent of the 750 respondents reported having no systematic method to prioritize projects or link them to corporate strategy.

Erik van den Broecke of the Vlerick Leuven Gent Management School, Brussels, Belgium, and Robert H. Dalton of Deloitte Consulting LLP, Atlanta, Ga., USA, recently discussed how executives can improve alignment efforts.

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What are the executive's responsibilities for ensuring projects are aligned with the overall company strategy?

Mr. Van den Broecke: Executives have the major responsibility for alignment. Many executives launch projects independent from one another, but more mature companies have processes where executives come together to discuss investments. It's in that process where you use portfolio management to select the right projects. Executives should try to have a balanced portfolio—high versus low risk, strategic versus operational.

Mr. Dalton: We recently conducted a Webcast survey of 423 clients, and more than 75 percent of them indicated difficulties in integrating and aligning their project portfolio with their core business strategy. A lot of companies are challenged here. The most effective ones use a three-tier model. The top looks at the entire enterprise project portfolio, the middle layer tends to major programs and the lower levels are individual projects. To do this right, executives must make sure alignment with the strategy occurs at all levels.

points of view

ROBERT H. DALTON is a principal with Deloitte Consulting LLP, Atlanta, Ga., USA. He has more than 22 years of experience across several industries, with a focus on business process transformation, reengineering and business process improvement, enterprise resource planning, organizational restructuring and operations improvement.

ERIK VAN DEN BROECKE is senior lecturer and researcher at Vlerick Leuven Gent Management School in Brussels, Belgium. His focus is project portfolio management, strategy implementation and IT governance. Before joining the school in 2002, he worked in the IT departments of several large international organizations and consulted for PricewaterhouseCoopers.

What are the advantages and disadvantages of strategic alignment?

Mr. Van den Broecke: A strategic alignment process ensures that the most appropriate investments are selected and the maximum business value will be generated. However, this process could introduce bureaucracy. If you centralize too much, there is a danger the entrepreneurship of the business lines will diminish. There is also a risk that the decision time could get longer.

Mr. Dalton: I think if you're not able to point discretionary initiatives and investments in the right direction to help achieve a company strategy and drive shareholder value over the long term, then you are not going to be successful as a company.

I agree if you implement this inappropriately or too rigidly you could stifle innovation, so you must be well-balanced as you manage both value and risk in the long term. We often help companies look at their entire enterprise portfolio in four major categories: innovation, growth, productivity and maintenance. Part of the project portfolio management process is deciding the asset allocation view across those big categories. Companies often have the vast majority of their projects focused on productivity, even though their strategies emphasize innovation and growth.

What information and tools are helpful in successful alignment?

Mr. Dalton: If a company is serious about aligning its projects and managing its portfolio, it needs a common framework as a foundation, a value map if you will. This lets the company look at its projects across the enterprise, then create a full life-cycle process to optimize the portfolio, and then manage, monitor and readjust it over time.

Typically, the enabling mechanism to really make this happen is the PMO and appropriately resourcing it to get the work done. It's not good enough for executives just to say they are aligning the portfolio to strategies and hope it happens on its own. You actually have to devote some resources and investment to make it happen.

Mr. Van den Broecke: You should start by having an explicit and actionable business strategy, so you can see very quickly whether a project fits in or not. Secondly, you should have very clear information about the business benefits. Large projects are often described mostly in technical terms, so you can't understand what the business benefit is and you don't have the information to align it.

How prevalent is the problem of strategy not aligning with projects? Are certain industries doing a better job?

Mr. Dalton: I don't know that there's an industry cut per se. It's more the stage of maturity. A lot of companies have no portfolio management processes in place, and projects occur—they come and go—and the results are what they are. On the other extreme, a lot of companies have figured out that harnessing the power of their project portfolio can truly have an impact on achieving their strategies and ultimately driving shareholder value. Those companies are starting to really differentiate themselves, but it's hard.

There are some real challenges because projects can cover a lot of ground—IT, process improvement, human resources—and it's not an easy thing to get a handle on the overall portfolio. You need a common framework so you can bring all the projects in and look at the impact they will have on various value drivers.

Mr. Van den Broecke: Companies in sectors where the environment is more turbulent—telecommunications, banking—tend to be more mature in strategic alignment. It's crucial for them because strategy and context change more quickly. They have to adapt their portfolios much more to the environment than companies in stable environments.

If a company's goals do shift, how can executives ensure their projects and portfolios are doing the same?

Mr. Van den Broecke: This is exactly what the portfolio management process should do for them. An organization should build mechanisms to become sensitive to strategic change.

The executive plays a very important role there. They should pass information about strategic changes to the program or portfolio environment. But stopping projects is quite hard and even having good information is sometimes not enough because portfolio management is not a precise thing. There are politics and opportunistic behavior that make it difficult.

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A good strategic alignment process ensures that the most appropriate investments are selected and the maximum business value will be generated.
ERIK VAN DEN BROECKE

What hinders an organization from successfully aligning its projects with strategy?

Mr. Dalton: One of the biggest barriers is often simply organizational inertia to set up a new way of doing things. Companies always have some projects under way, others being launched and even more being considered. The question is to what extent these myriad projects actually support and align with the strategy.

Mr. Van den Broecke: It all starts with the attitudes of the executives. They should start with understanding that there is an advantage in having aligned projects. As long as they don't understand that, they will never even think of setting up an organization to help them in doing this. Developing a PMO will take time, and the benefits will come slowly. You need skilled people in portfolio program management, and that is certainly a high barrier that a lot of companies are facing.

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Executive involvement is critical, especially in defining where projects are focused, aligning those projects with the strategy and ensuring that only those projects that are, in fact, important to achieving that strategy are launched. —ROBERT H. DALTON

Does a PMO ensure success in aligning corporate strategy with projects?

Mr. Van den Broecke: If you don't have one, your chances of alignment are lower. But if you have one, it doesn't mean you are automatically aligned because the PMO needs to be supported by executives and understood by project managers. I have seen many PMOs that don't function like they should.

Mr. Dalton: Yes, I would agree. It certainly doesn't guarantee successful alignment, but having a PMO makes a big difference. Without it, you typically don't have any good way to coordinate projects—either those being planned or those under way. You can have a lot of inconsistency in how business cases are developed and projects are approved. You typically have a lack of integration across the projects in the portfolio. You don't have a way to manage issues and escalate ones that really need management attention. You don't have a good way to communicate both within and outside the organization as to what the portfolio is doing to drive shareholder value. The PMO can be a very important catalyst to really have an impact here.

How big a role does executive involvement play in the ultimate success of a project?

Mr. Dalton: Executive involvement is critical, especially in defining where projects are focused, aligning those projects with the strategy and ensuring that only those projects that are, in fact, important to achieving that strategy are launched.

Executives who own those projects must be given responsibility for the targeted benefits and outcomes all the way through the life cycle, and their performance evaluation and compensation should be tied to the result of those projects.

Mr. Van den Broecke: I fully agree with that. It's not only the initial phase that's very important for the alignment, but also the execution. Executives should take ownership to ensure the necessary business changes are realized. They should also guarantee that the necessary resources are made available, and they certainly should be accountable for realizing the business benefits.

In terms of strategy and alignment, how can executives prevent a project from failing?

Mr. Dalton: One of the reasons projects fail is that they don't help drive a corporate strategy or key business objective. The organization realizes this and either just lets the project wither away and die or doesn't give it the appropriate focus. Executives absolutely have a responsibility to help guide where these projects are focused and oversee them through their entire life cycle.

Once they have chosen a project to be part of the portfolio, executives should make sure the mechanisms, the right investments, the right resources and the right organizational focus are in place. This means they explicitly choose other proposed projects to not go forward and they have the responsibility to tell people, “No, that project is not important to the enterprise, and we are not going to support it.”

Mr. Van den Broecke: One of the main elements of project failure is not enough support from the executives. Once the project is chosen, executives must take accountability for the end benefits and support the project through the whole cycle. They must take ownership of changes so they can direct people in their departments but also those in other departments to be supportive of a project and to help it become successful.

Do project managers and executives necessarily need to see eye to eye on alignment?

Mr. Van den Broecke: Executives don't always talk to project managers and vice versa. Having a layer of program managers can help bridge the gap between these two levels of control. In larger organizations, an executive will never be able to talk to all the project managers, but he or she can talk to a couple of program managers.

Mr. Dalton: Project managers and executives each have their own roles to play, but there has to be some common ground, especially in terms of intended outcomes and how they will align with the company's business strategy.

It's important for project managers to first understand the strategy and then how their given projects help support that strategy. They must be able to articulate not just the milestones or the technical deliverables from a project, but also the business case around that.

From the other vantage point, executives know—and, in fact, probably created—the business strategy. They may not need to understand the details of exactly how a given project is going to get done, but they need to know how it's going to help them accomplish that strategy. They need to set stretch goals for the organization and the project managers—not just milestones but actual business benefits targeted by these projects. PM

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.

PM NETWORK | APRIL 2006 | WWW.PMI.ORG
APRIL 2006 | PM NETWORK

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