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Abstract
Project Management helps ensure that projects are done right. Strategic Portfolio Management determines the very future of the enterprise; its competitiveness, and ultimately, its survival. Think of strategic successes such as Microsoft, Costco, and Starbucks and strategic failures such as TWA, Digital Equipment, and WordPerfect. Each had a strategic portfolio. Each made strategic decisions on what to place in their portfolios and how to execute. Some have thrived. Some have not survived. This paper provides a framework for developing and maintaining an enterprise-wide Strategic Portfolio Management capability. This paper defines and champions Strategic Portfolio Management which the author believes is the natural, evolutionary next step made possible by the foundational enterprise project management (EPM) tools and process currently being implemented in many organizations.
Strategic Portfolio Management can be a vehicle for transformation and breakthrough. Bill Davidson writes in his book Breakthrough, "Think of breakthrough as enterprise-scale innovationsignificant enough to shape an emerging enterprise or to reform the core of an existing organization"(2004, p. 4). Breakthroughs typically result from large-scale, long-term initiatives that use advanced technologies and radical process innovations to achieve leaps in operating performance, financial results, and market position as outlined in the following Apache, Yellow Roadway, and Boeing examples. Enterprise project management (EPM) capability is an essential component of Strategic Portfolio Management. Exhibit 1 depicts the authors view of the emerging role of Strategic Portfolio Management that it is built on the foundation of enterprise project management. Exhibit 2 lists currently available EPM solutions. There are numerous enterprise project management solutions available today. All require significant tailoring and staff training to be successful. However, once an enterprise makes the investment and masters the EPM toolset, it is ready to use it strategically, as described in the paper. The Strategic Portfolio Management process is software independent and can be implemented with any of the solutions listed.
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
Exhibit 1. Strategic Portfolio Management is built on a foundation of enterprise project management (EPM).
ChangePoint IBM EPM Niku Open Workbench Oracle EPM Microsoft Project EPM
Yellow Roadway
Microsoft Communicator
Boeing 787
Less is More?
The new Boeing 787 targets a market expected to reach 3,500 new aircraft over 20 years, valued at more that $400 billion. (2004 Annual Report)
1970
1980
1990
2000
2010
2030
2040
Exhibit 3. Three case studies: The Apache Helicopter, Yellow Roadway, and the Boeing 787 Case Study 1: The Apache Helicopter Program and a Bet the Company Strategy The Apache helicopter was designed and built by what was then Howard Hughes Helicopter Company. It is a breathtaking example of wildly successful strategic decision-making. Before the Apache, Howard Hughes (and his 2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada 2
heirs, after his death in 1976) had tried to give away the Helicopter Company to other aerospace companies. There were no takers. After winning the Apache production contract in 1984, Hughes heirs were able to sell the company for half a billion dollars. The winning Apache design by Hughes Helicopter Company employed a design philosophy of Less Is More. Bell Helicopter was significantly heavier and slower. Exhibit 4 contrasts the two-rotor blade, heavy, slow design flown by Bell Helicopter (top) with the four-blade, agile design by Hughes that ultimately won the flyoff competition. Exhibit 5 portrays the competitive environment at the time. The Apache had two types of competition: The first from other branches of the military for the basic mission, and the second from other Army programs; all competing for a finite development budget. (Here there were two portfolios operating: the Armys development portfolio had to fit within the overall DoD portfolio.) Exhibit 6 provides a model showing some of the external and internal factors impacting product design acting on the Apache helicopter program. The Apache was the largest component in the Helicopter Companys strategic portfolio, but as shown in Exhibit 7 there were a number of other important components in the portfolio. Lastly Exhibit 7 also looks at the Apache as one component in the companys strategic portfolio. The entire Helicopter Company was viewed as an aggregation of projects and programs by an organization that was then called Financial Planning and Control but today would probably be called an Enterprise Program Management Office
Exhibit 4. Apache design by Hughes Helicopter Company (bottom photo) Bell Helicopter (top photo).
Apache Team
Facilities
Information Technology
Apache Program
R&D
Chain Gun
Exhibit 6. Apache strategic model Case Study 2: Yellow Roadway Corporation The Yellow Roadway stock price more than doubled in two years, and they have been the most admired company in their field for three years running according to FORTUNE magazine (Exhibit 8). One element of this success story 2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada 3
has been leadership provided by the executive leadership team (see The Leadership Factor discussed later in Part 5 of this paper). Another factor has been the Less Is More philosophy that has been in operation in the trucking industry; twenty-five years ago the were sixty carriers, today there are one tenth that number and Yellow Roadway is number one. Less Is More in this case translated to fewer carriers equals greater market share. This growth at Yellow Roadway was facilitated by a robust information technology infrastructure that included an EPM solution, an Enterprise Program Management Office (EPMO), and experienced project managers. The Yellow Roadway strategic portfolio was created using the AIM process described in Part 2 of this paper.
Exhibit 8. Yellow Roadway stock price doubled in two years. and Yellow has been number one in its field for three years running on the FORTUNE list of most admired companies. Case Study 3: The Boeing 787 versus the Airbus A380 A Bet the Company Decision? With the explosive growth of virtual teams in different locations and widely separated time zones, easy to use, seamless communications is becoming an essential tool in support of Strategic Portfolio Management. Exhibit 9 shows an example of a collaboration tool, Microsoft Communicator. What effect will these real-time, Internet-based, low cost communications applications have on business travel? In the last century business travel on steamships and railroads was replaced by air travel. Over the next ten years what impact will high-speed Internet access, collaboration tools, and low cost video conferencing have on businessrelated air travel? How many 550-seat aircraft will the marketplace demand?
Exhibit 10. Physical Travel: The Boeing 787 Dreamliner versus the 550 passenger Airbus A380.
Both Boeing and Airbus have made huge strategic portfolio bets on what the future of airline travel will look like. Exhibit 10 above contrasts the size of the two aircraft. As in the Apache Helicopter case, both Boeing and Airbus had to place these bets while taking into account all the other opportunities and demands in their strategic portfolios. And these bets by Airbus and Boeing could not be more different: Airbus has built and is conducting initial flight 2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada 4
tests of its 550 passenger, two-deck A380. Boeing is building a single deck aircraft named the Dreamliner with half the passenger capacity. Adequately comparing the market potential of these two aircraft is beyond the scope of this paper; however, a brief synopsis follows: The Airbus A380 has significant risks. The large wingspan requires most airports to widen taxiways so that two planes can pass each other. Many airports must add additional jetway bridges to accommodate the large number of passengers and baggage handling systems also need to be upgraded. A handful of airports at major international hubs are investing millions of dollars. Difficulties in manufacturing have delayed deliveries and pushed service entry back by at least a year to late 2006 or early 2007. These delays have also caused a significant cost overrun of nearly $1.5 billion driving up unit cost by about 25%. This overrun has hurt Airbus ability to investment in a B787 competitor. The major risk for Boeing is the Dreamliners large-scale composite fuselage structure; however the upside is that the B787 will use 20 percent less fuel than any other airplane of its size and will be half the cost of the A 380. It will provide breakthroughs in cabin comfort for its passengers and will permit economical direct point-to-point travel, not the hub and spoke travel system required to fill a 550-seat aircraft. And very important from a financial perspective, the engine design minimizes risk for leasing companies, if the aircraft is leased to another airline. Now that we have briefly looked at some of the strategic aspects of preceding examples, the remainder of this paper will provide a Strategic Portfolio Management framework.
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
Readiness Readiness
Readiness Planning
Initiative Articulation Projectization of Initiatives
Execution Execution
Transformation Assessment
Performance Monitoring
Organizational Strategy
Communication
People Strategy
Leadership Development
Performance Management
Exhibit 12. The AIM implementation schedule. Exhibit 13. The closed-loop Strategic Portfolio Management process. Exhibit 12 depicts a typical nine-month implementation schedule. The AIM process can be implemented relatively quickly, however implementation of the resulting inititiaves can span a number of years. This can be accomplished concurrently with implementation of an EPM system, if one is not already in place.
The AIM cycle process as described in this paper was developed by the Mesa Research Group, LLC.
The Strategic Portfolio Management process is a closed loop system that links enterprise strategy investments to project results and provides performance metrics feedback on strategic outcomes to the executive leadership team. (Exhibit 13).
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
An enterprise initiative diagram is shown in Exhibit 14. . Enterprise initiatives represent a long term strategic undertaking that supports the companys vision and mission These initiatives can have a wide range of objectives; they can be designed to deliver significant growth and change in the companys market coverage, offerings, competitiveness, market position, infrastructure, capabilities, and financial performance. Each core initiative is sponsored by a member of the executive leadership team. Each bubble in the diagram shown in Exhibit 15 represents a component that is needed to achieve the preferred future state. Each enterprise initiative is assigned to an Initiative Team to develop a roadmap (the diagram shown above) to reach the preferred future state. Some of these initiative components will be selected for funding by the executive leadership team and go on to become programs and projects. Two tools have been developed to facilitate this initiative development and filtering process.
Exhibit 17. The Opportunity Profile Workbook Exhibit 16. The Initiative Articulation Workbook
The Initiative Articulation Workbook (Exhibit 16) is used by each initiative team to describe: 1) the preferred future state, 2) the current state, and 3) the components required to achieve the preferred future state each component may in turn develop into one or more projects, depending on its opportunity profile. The Opportunity Profile Workbook, Exhibit 17, is completed by the Initiative Team for each candidate project. The workbook is used to prepare strategic, financial, and risk assessments for each proposed project. These assessments are summarized and prioritized in a database that provides the executive leadership team with the weighted value of each candidate project. The executive leadership team uses this portfolio of candidate projects as one of the factors in making their investment decisions. An overview of a typical Strategic Portfolio Management implementation is shown below in Exhibit 18. The process is supported by an enterprise project management system (EPM) and a business metrics solution. In this example the EPM solution is based on Microsoft Project Server. Other EPM solutions were listed earlier in Exhibit 2.
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
The Foundation
Mature PMO
Establishes and manages collaborative processes for project portfolio management Aligns projects with business strategy Establishes project business case review gateways Implements a process for resource review and allocation Develops methods to prioritize projects
Enterprise PMO
Creates a comprehensive project portfolio management capability Convenes formal portfolio review boards or other authority on a recurring basis Enables real-time project data use in decision making Establishes early project termination process
Exhibit 19. Strategic Program Management is built on a strong project management foundation.
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
Project Management
1. 2. 3. 4. 5. 6. 7. 8. 9. Focus mostly on tactical issues. Science of project management. Views organization as a complex machine. Emphasis on monitoring and control. Provides tools similar to a precise "map" to follow. Internal process focused. Process driven. Standard (heavy) methods and practices. Based on rules; follow rules.
10. Defined, repeatable, managed and optimized practices. 11. Focus on efficiency. Focus on effectiveness and innovation. 12. Process leadership. Thought leadership. Exhibit 20. The evolution from project management to Strategic Portfolio Management.
Because the AIM process focuses on strategic opportunities, resource availability is almost always a significant challenge. The organization must continue to resource its ongoing operations, plus the new strategic initiatives. This is why an enterprise project management (EPM) system is essential to success of a Strategic Portfolio Management implementation. Early identification of resource demand and potential bottlenecks is required to maintaining initiative momentum. Challenging business units about when new resources need to be in place focuses
the planning dialogue on what actually needs to happen across the company in order to execute each units strategy. 5: Clearly identify priorities. To deliver any strategy successfully, managers must make thousands of tactical decisions and put them into action. But not all tactics are equally important. In most instances, a few key steps must be takenat the right time and in the right wayto meet planned performance. An integral part of the AIM process involves summarizing all
opportunities in terms of the strategic value, financial return, and risk. These assessments aid the executive
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada 10
leadership team in clearly identifying priorities which projects will be funded and in what order. Leading
companies make these priorities explicit so that each executive has a clear sense of where to direct his or her efforts. Large enterprises cannot control implementation from headquarters, but can work with the Initiative Teams to agree on the priorities, communicate relentlessly, and hold managers accountable for executing against their commitments.
An enterprise program management office (EPMO) is usually required to provide this type of enterprise-wide integration.
6: Continuously monitor performance. High-performing companies use real-time performance tracking. They continuously monitor their resource deployment patterns and their results against plan, using continuous feedback to reset planning assumptions and reallocate resources. This real-time information allows management to spot and remedy flaws in the plan and shortfalls in executionand to avoid confusing one with the other. Two components are essential, in one form or another, to achieve this real-time performance tracking: They are an EPM system and an EPMO. Continuous monitoring of performance is particularly important in highly volatile industries, where events outside anyones control can render a plan irrelevant. Under CEO Alan Mulally, Boeing Commercial Airplanes leadership team holds weekly business performance reviews to track the divisions results against its multiyear plan. By tracking the deployment of resources as a leading indicator of whether a plan is being executed effectively, BCAs leadership team can make course corrections each week rather than waiting for quarterly results to roll in. Furthermore, by proactively monitoring the primary drivers of performance (such as passenger traffic patterns, airline yields and load factors, and new aircraft orders), BCA is better able to develop and deploy effective countermeasures when events throw its plans off course. 7: Reward and develop execution capabilities. No list of rules on this topic would be complete without a reminder that companies have to motivate and develop their staffs. At the end of the day, no process can be better than the people who have to make it work. Companies that create tight links between their strategies, their plans, and ultimately their performance often experience a cultural multiplier effect. Integral to AIM framework, shown in earlier in Exhibit 11, are the people strategy and performance management components to link strategy to plans to management performance . Over time, as they turn their strategies into great performance, leaders in these organizations become much more confident in their own capabilities and much more willing to make the stretch commitments that inspire and transform large companies. In turn, individual managers who keep their commitments are rewardedwith faster progression and fatter paychecksreinforcing the behaviors needed to drive any company forward.
Conclusion
Strategic Portfolio Management is the next big opportunity to achieve and sustain competitive advantage. To be successful, Strategic Portfolio Management must be built on top of a robust enterprise project management system that the organization is trained to use and actually finds indispensable for day-to-day management.
References
Davidson, B. (2004). Breakthrough: How great companies set Outrageous objectives and achieve them, Hoboken, New Jersey: John Wiley & Sons, Inc.. Welch, J. (2005, April 18,). Jack Welch Its All in the Sauce. [Review of the book ] Fortune 151(8) 138 Kendall, G. I. & Rollins, S. C. (2003) Advanced project portfolio management and the PMO. Ft. Lauderdale, FL: J. Ross Publishing. Mankins, M. C. & Steele, R. (2005, July-August) Turning Great Strategy into Great Performance. Harvard Business Review 83 (7) 64-73
2004, Stephen Garfein Originally published as part of the Proceedings 2005 PMI Global Congress Toronto, Canada
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