What if you are a leading energy company that practically invented the market in your segment. For the past 25 years you did not have much competition, but now you have to deal with disruption in your industry. You unexpectedly lose a bid that was almost a guaranteed win. Up to this point, the focus was on execution, building technical capabilities and competence. The projects organization was proud of its accomplishments and timely execution of technically challenging projects. Now, suddenly, you are inundated with the reality of declining costs, reducing margins, increased competition, oversupply in the value chain, and changes in the underlying business model of the industry. One of the executives of this European energy company questions, “Up to now we have been measured on execution and delivering high‐profit‐margin projects on time, and we have not faced any competition. What do we do now? How do we win in this disruptive environment?”

In the convulsive changing world of the U.S healthcare industry, a PMO had survived on the sidelines by providing execution support for 10 years. After a new director took over and struggled to show value of the PMO, she had a transformative aha moment in my next‐generation PMO seminar. She went on to transform and grow the PMO from a portfolio of 5 projects with a staff of 7 to managing a US$4 billion portfolio of 38 projects with a team of 60. The PMO became a focal point, and every proposal highlighted the PMO's execution capabilities as a core competency. What was the turning point? What changed the perception of the PMO from a sideline execution support entity to a game‐changing influencer and strategic partner?

One of the largest banks in Asia was struggling with too many initiatives and projects and lack of prioritization. It decided to implement a portfolio management process. It formed a portfolio committee that, after much deliberation, came up with a project classification and ranking criteria based on classic financial risk‐reward scoring for each project. Now the bank had a good inventory, and the projects were ranked on a prioritized list. This was a little better, but not much had changed. It was hard to make tough decisions to terminate projects or reallocate resources. What seemed to be promising turned out to be a lot of busy work, with increased meetings and deliberations without clarity of outcomes. What is amiss in this situation? What can be done to make portfolio management useful?

In each of the above examples, what's missing is the right focus on strategy. In the first scenario of the energy company, effective execution was the strategy up to this point; now in a disruptive world, they need to recreate their strategy to compete to win. Winning needs to be infused into execution to make it strategy execution. In the second example of the healthcare PMO, the light bulb moment was the understanding that the PMO needs to go beyond execution and connect to the growth strategy of the organization. Things started to turn quickly as the PMO repositioned and retooled itself to focus on enabling and supporting the growth strategy. What was amiss in the portfolio management initiative of the bank was the missing link of the selected projects in the portfolio to the overall strategy of the bank. This is a common flaw where a lot of effort goes into generic portfolio selection and prioritization models without clarity on the organization's strategy.

This chapter will further delve into these examples to show how strategy is the foundational element of the DNA and how clarifying, connecting, and catalyzing a coherent strategy across the board is critical.

WHAT IS STRATEGY?

According to a survey of more than 500 senior executives around the world by Strategy&, PwC's strategy consulting business, 80 percent said that their overall strategy was not well understood, even within their own company.

Strategy is probably the most overused, misunderstood, and misinterpreted word in the business world. It is not just a project, but a “strategic project,” or a “strategic initiative,” or a “strategic PMO,” but what does that mean? Strategic is often overused as a qualifier to convey that it is something big or important. Often, mission/vision statements or goals like “be the number one in our industry” are mistaken for strategy. One of the best explainers of strategy is Richard Rumelt, and in his book, Good Strategy Bad Strategy, he explains how a hallmark of mediocrity and bad strategy is a flurry of fluff masking an absence of substance. Most bad strategies are nothing more than an assortment of goals and desire that often contradict one another. Bad strategy is long on goals and short on policy or action. It assumes that goals are all you need for execution. It puts forward strategic objectives that are incoherent and, sometimes, totally impracticable. It uses grandiose jargon and phrases to hide these failings. Rumelt writes:

Despite the roar of voices wanting to equate strategy with ambition, leadership, “vision,” planning, or the economic logic of competition, strategy is none of these. The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors. A leader's most important responsibility is identifying the biggest challenges to forward progress and devising a coherent approach to overcoming them.

According to Rumelt, good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. He breaks down the kernel of strategy into three elements: a diagnosis, a guiding policy, and coherent action—a diagnosis of the current situation and a guiding policy that specifies the approach to dealing with the challenges called out in the diagnosis. He uses the analogy of a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are coordinated commitments and resource allocations designed to carry out the guiding policy. A good strategy doesn't just draw on existing strength; it creates strength through the coherence of its design. Most organizations of any size don't do this. Rather, they pursue different objectives that are disconnected, and the incoherence causes further cracks in the organizational mirror.

Strategy Is Not Planning

In the project world, it is important to clarify another myth and distinguish strategy from planning. Roger Martin, the former dean of Rotman School of Management, writes in Harvard Business Review:

I must have heard the words “we need to create a strategic plan” at least an order of magnitude more times than I have heard “we need to create a strategy.” This is because most people see strategy as an exercise in producing a planning document. In this conception, strategy is manifested as a long list of initiatives with timeframes associated and resources assigned. Somewhat intriguingly, at least to me, the initiatives are themselves often called “strategies.” That is, each different initiative is a strategy and the plan is an organized list of the strategies.

But how does a strategic plan of this sort differ from a budget? Many people with whom I work find it hard to distinguish between the two and wonder why a company needs to have both. And I think they are right to wonder. The vast majority of strategic plans that I have seen over 30 years of working in the strategy realm are simply budgets with lots of explanatory words attached.

To make strategy more interesting—and different from a budget—we need to break free of this obsession with planning. Strategy is not planning—it is the making of an integrated set of choices that collectively position the firm in its industry so as to create sustainable advantage relative to competition and deliver superior financial returns.

How do you integrate all this and create a simplified strategy? Roger Martin along with A.G. Lafley in their book, Playing to Win, provide a template with five questions: (1) what is our winning aspiration; (2) where will we play; (3) how will we win; (4) what capabilities need to be in place; and (5) what management systems must be instituted?

These questions, which can be addressed on one page, provide a sound framework to practice and connect strategy to execution and other areas of the DNA from a project and PMO standpoint. The questions start with a focus on “winning,” which helps to shift focus from just execution and getting things done to results and outcomes. If you are part of winning, you need to know what game you are playing and with whom, and you have a sense of ownership and accountability for results and outcomes. Your perspective shifts from execution to strategic execution with not just delivering on time and budget, but how can we win by executing with a purpose to win—how could our project delivery capabilities become a competitive advantage? Instead of a doer, you become a driver—a strategic partner and influencer on how to win by building and enabling PM and PMO capabilities. This is exactly what was missing in the above example from the energy company, where they had matured their execution over the years. Like typical companies, they had a 2020 goal of producing X gigawatts of energy, which they were well underway to achieving. They were focused on execution, and winning was not a part of their framing. They found themselves disrupted in a changing landscape of increasing competition.

Donald Sull and Kathleen Eisenhardt write in their book, Simple Rules:

Developing a strategy and implementing it are often viewed as two distinct activities—first you come up with the perfect plan and then you worry about how to make it happen. This approach, common though it is, creates a disconnect between what a company is trying to accomplish and what employees do on a day‐to‐day basis.

They provide a way to bridge this gap between strategic intent and actual implementation in three steps, which is particularly useful for projects and PMOs:

• Figure out what will move the needles.
• Choose a bottleneck.
• Craft the rules.

The two needles (Figure 4.1) represent the top line of revenues and bottom line of costs. The first step is to identify the critical choices that will drive a wedge between revenues and costs to increase profits and sustain them over time. The second step is to identify a bottleneck, a decision, or activity that is preventing the company from improving results. The final step is to craft a set of simple rules that, when applied to the bottleneck, impacts profitability. The metaphor of the needles and the related visual of the top line and bottom line resonates well in my experience and is a very effective way of communicating strategy and what actions need to be taken to connect execution to strategy.

The key question for any project and PMO is to ask what action we have to take to move the needles to widen the wedge. In the case of PMOs, it can be hard to show a direct impact on revenue; however, a good place to start is to see what the bottlenecks are that can lower the bottom line of cost. According to Sull and Eisenhardt, the best bottlenecks to focus your attention on share three characteristics:

1. They have a direct and significant impact on value creation.
2. They should represent recurrent decisions (as opposed to “one‐off” choices).
3. They should be obstacles that arise when opportunities exceed available resources.

Based on these bottlenecks, you collaborate with stakeholders to craft the rules that impact decision making and prioritization. Instead of a top‐down governance committee crafting the rules, it is vital to include people who are involved in day‐to‐day activities who have project field intelligence and can provide insights that may not be obvious at higher levels.

If you are trying to win a car race, you can apply strategic thinking by trying to move the needles by either building a faster car or trying to gain efficiencies. This is exactly what Audi did when it developed the R10 TDI car for the famous 24‐hour Le Mans race in 2006. Audi asked a how‐to‐widen‐the‐wedge question, “How could we win Le Mans if our car could go no faster than anyone else's?” It diagnosed the challenge and identified the bottleneck as pit stops. As Audi focused on the design elements of the problem, it led toward the answer of fuel efficiency to put diesel technology into the race cars for the first time. Audi could win the race with a car that wasn't faster than any of the other cars with the strategy of fewer pit stops. And it was right: the R10 TDI placed first at Le Mans for the next three years.

In the case of the previous energy company, it was jolted by a wave of changes in the offshore wind power industry that it had dominated for over 25 years. The company spent a lot of time diagnosing its current challenges with declining costs, new competitors, declining margins, and oversupply in the supply chain. It identified the bottleneck as the delivery mechanism, as the competition shifted to cost of electricity. The company decided that it was not going to play in the onshore market. The whole company was mobilized in clarifying that strategy to compete on cost. The project managers, led by the PMO, became key players in mobilizing this new strategy. With their technical expertise, instead of a heads‐down execution approach, the PMO tapped into the field intelligence of project teams to identify the levers to influence cost and innovate on reducing the delivery cost of electricity, where the future competition was headed.

WHAT IS THE ROLE OF PROJECT, PROGRAM, PORTFOLIO, AND PMO IN STRATEGY?

Projects and programs are the vehicles to implement strategy. PMOs, as well as project and program managers, can play a key role in strategy. Traditionally, they have been separated as the doers versus the thinkers who focus on strategy. A central point of this book is you cannot separate the two—they are the two intertwined core elements of the DNA. For PMOs, it has been a slow evolution from being boxed into execution and unawareness of strategy to awareness, alignment, support, and participation and having a seat in some organizations at the strategy table. There is a shift from planning, administration, coordination, and support to project/program managers and PMOs being a strategic player and participating and influencing strategy. This was the case with the healthcare PMO introduced in the beginning of the chapter that had the insight to connect to the growth strategy and had started to play a key role in strategy. The PMO helped to test and validate the business hypothesis of each proposal. They challenged themselves to see how they could design and configure execution as a strategic advantage. They continued to widen the wedge by actively engaging in winning new contracts, as well as fine‐tuning processes to lower costs.

Whether it already has a seat at the strategy table or not, the PMO can start to earn a spot by understanding, clarifying, supporting, aligning, facilitating, enabling, and catalyzing strategy, in its own way. You are not going to automatically get invited; you have to demonstrate that you have what it takes to play in strategy work. In a Projectize Group survey, 55 percent of PMOs reported they are involved in strategy. This is an opportunity for the PMO to not only link strategy to execution but also be a player in driving better strategy and strategic execution. Besides focusing on portfolio management, PMOs can play a role in strategic decision support by providing diagnosis, choices, and design for coherent actions based on their project and program insights and field intelligence.

THE DNA STRANDS OF STRATEGY

To reinterpret strategy with a PM and PMO lens, we have identified five strands of strategy listed in Figure 4.2.

These strands are an attempt to integrate the wisdom of the strategy gurus already discussed and apply it from a PM and PMO standpoint. Table 4.1 provides a way to apply these strands by asking the related questions and tying it to PM or PMO functions. It can also be used to develop PMO strategy intelligence. It is important to point out that there is bound to be overlap, as these strands are typically intertwined, and the order of questions or activities may not necessarily be sequential.

HOW CAN THE PMO LINK STRATEGY WITH EXECUTION?

I remember my first experience as a part of a PMO almost 20 years ago. The PMO dealt mostly with delivery and execution issues in a professional services organization, in a division of about 2,000 engineers/consultants and 150 project managers. We were involved in establishing PM standards, training, mentoring, and supporting projects for two and a half years. We were busy and comfortable in our execution circle. The challenge was that the project success rate had not gone up. Some of the functional managers were complaining that the PMO was slowing things down and not adding any value. Some of them felt the PMO should be disbanded and the team should be made billable on client projects.

I clearly remember the moment of my awakening to the business and strategy sphere. As things came to a head and we were going through a reorganization, our senior vice president didn't know what to do with the PMO. He was being pressured to disband the PMO; he was not quite sure, but he saw some value and called a meeting. There was a lot of deliberation about the challenges and the role and value of the PMO from the various stakeholders. Toward the end of the meeting, the senior vice president challenged us that the PMO had been in existence for two and a half years, and the value was questionable. So he challenged us to come up with a business plan for the PMO. Up to that point, I had never thought about the PMO from a business perspective. As I reflected on the challenge and worked on creating a business plan for the PMO, the light bulb went on, and I understood that there is another side besides delivery and execution of projects and PMO. It is really about the business and how the projects and PMO can impact the business and strategy.

In our approach, we recommend that every PMO should have a business plan or a business model canvas (explained below) that shows how the PMO is going to support, enable, and impact the business, with a value proposition in terms of cost and return on investment (ROI). The PMO has to show how it is going to move the needles and widen the wedge between revenue and cost. An easy way to create a business‐focused project and PMO culture is to challenge and train everyone with the WIGBRFDT—What‐Is‐the‐Good‐Business‐Reason‐for‐Doing‐This? If anybody involved in projects cannot answer this in less than 30 seconds, they are wasting the company's time and resources.

To understand the business and strategy, you must start with the business model. The business model is like a blueprint for a strategy to be implemented through organizational structures, processes, and systems. It describes the rationale of how an organization creates, delivers, and captures value. Another approach that we have adopted in recent years is to create a business model canvas (BMC). Initially proposed by Alexander Osterwalder, the BMC (Figure 4.3) is a strategic management and lean start‐up template for documenting and visually describing the four main areas of a business: customers, offer, infrastructure, and financial viability. The canvas illustrates the nine basic building blocks of how a company intends to make money:

1. Customer segments
2. Value propositions
3. Channels
4. Customer relationships
5. Revenue streams
6. Key resources
7. Key activities
8. Key partnerships
9. Cost structure

You can print out the BMC on a large surface and collaborate with your team to jointly start sketching and discussing business model elements with Post-it notes or board markers. It is a hands‐on tool that fosters understanding, discussion, creativity, and analysis. You can download it from the Strategyzer AG Website.

Every PMO team should do this exercise of completing and validating the BMC with key stakeholders to make sure they understand the building blocks of their business and overall strategy. They should review each of the building blocks and identify opportunities to see how they can impact and add value in any of the nine areas. They can use a design approach to see what areas can be tweaked and optimized to create strategic advantage. The more the links and overlaps of the PMO activities on the BMC the greater the opportunity for the PMO. If the PMO cannot easily identify the areas of impact, it is going to be challenged.

There are many different variations of the template. We have seen our clients adapt in a variety of ways. We have also modified it to create a one‐page initiative review template, in lieu of a business case for an initiative or project. Figure 4.4 is an example of an initiative review template.

Why not also adapt this for existing projects, to make sure the project team understands the business reasons for the projects and what areas of the business the project is going to have an impact. This is a practical approach to promoting business alignment and a sense of ownership in business outcomes, leading toward strategic execution.

You can take the output of the BMC and input it in a simple project or PMO business alignment matrix to show what the project or PMO is working on, and how it aligns to the business and strategy.

The business alignment matrix (Figure 4.5) is also a good way to craft your elevator pitch, as it has all the key elements that executives are interested in. What are you working on? Why are you working on it? What area of the business model does it address? Who cares, or who is going to be impacted? And how will we measure it?

SELECTING, PRIORITIZING, AND BALANCING: PORTFOLIO MANAGEMENT

If strategy is about determining where to play, how to win, and what to do and, more importantly, what not to do, then selection and prioritization of initiatives and projects in a coherent way become a crucial function. The accelerating DANCE and disruption have created a crisis of prioritization. To deal with the barrage of initiatives and projects, many organizations have adopted project portfolio management (PPM). Touted as a strategic function of project management and PMOs, often it is not strategic at all. It is mostly a capacity planning and budgeting exercise. Ironically, strategy and strategic dialogue is what's missing from portfolio management. Even agile prioritization is based on business value, but how do we know if it is strategic?

Remember the example of the bank that implemented portfolio management at the enterprise level. They had a good portfolio process and seemed to do everything right, according to the standard portfolio management playbook. But they struggled to make tough decisions to terminate projects or reallocate resources. They had objective ranking criteria, but there were endless deliberations. Project proponents were prone to rig the system to justify their initiative and rank it higher. As we diagnosed the problem and spoke to their executives, it became obvious to everybody that what was missing was a strategy. There was no unified understanding of strategy; they made all the classic mistakes about strategy discussed above. They confused vision and goals for strategy. The objective project ranking criteria they had was a generic model. That's why it did not make sense to the portfolio committee, and there was no real buy‐in for it, even though everybody had agreed to it in the beginning.

As Lafley and Martin point out, “Strategy tells you what initiatives actually make sense and are likely to produce the result you actually want. Such a strategy makes planning easy. There are fewer fights about which initiatives should and should not make the list because the strategy enables discernment of what is critical and what is not.” The original selection criteria included a common combination of (1) financial measures of ROI and net present value (NPV), (2) cost, and (3) risk.

After we worked with the executive team and applied the strands of strategy, by asking the appropriate questions, they were able to diagnose the pain. Now, they had a different perspective, and it became clear to them that they had to focus on cost. They outlined their choice to minimize spending, and focus on growth in one segment where they had an advantage. After much deliberation, they designed a new selection and prioritization criteria—anything that (a) removes bottlenecks in the growth segment, (b) requires minimal up‐front investment, or (c) reuses existing resources. This new criterion was used after and on top of initial rankings provided by the PMO based on financial, cost, and risk analysis, to decide and commit appropriate action. Overtime, they evolved to adapt and fine‐tune the criteria based on evolving strategy.

When strategy is well understood it is interesting to observe how it shifts perspective. There is more focus and fewer arguments and people understand what needs to be done to win, and why their initiative may not be most important. They know what to say yes to, and what to say no to. They can see the overall picture, to design, tweak, and commit to coherent actions.

PPM has evolved in recent years with a multitude of models, criteria, and scoring mechanisms for selection and prioritization. As you adapt portfolio management for your organization, the scoring and ranking criteria can easily multiply and get too detailed and complex, losing the essence of portfolio management. The approach that is adapted may not be relevant to your organization or too complicated. As a result, PPM is not well understood and may not have buy‐in and engagement from all stakeholders.

Following are pointers on how to take PPM to the next level and infuse it with strategy:

• Adapt a shark‐tank approach

  Traditional PPM is a demand management or capacity planning exercise with a cost and budget mindset. You need to shake things up with a shark‐tank approach, to shift to an investment mindset and create a competitive and winning spirit. What if it were your own money—what kind of pitch you would want to see; how would you make investment decisions? One thing is for sure: you would focus on your investment strategy, and there would be more rigor and preparation. What is your investment strategy? What is your competition? How are you going to win?

• Stop greasing the squeaky wheels

  How do you make the best use of limited resources? How do you avoid the tendency to be pulled into projects that seem urgent on the surface but are not important strategically? It is important to understand the concept of triage, which is a system used by emergency personnel to sort patients according to the urgency of their need for care. Triage is designed to maximize survival and make the best use of limited medical resources. In the organizational context, triage is defined as the assignment of priority order to projects based on where funds and other resources can best be used, are most needed, or are most likely to achieve success. In organizations with limited resources and many initiatives, the “squeaky wheels” often get attention at the cost of high‐value strategic projects. To avoid being pulled in the wrong direction, triage can help you establish categories based on objective criteria.

• Define the right categories

  To do a fair comparison and prioritization of projects, they have to be classified in appropriate categories. According to the PMI Standard for Portfolio Management, categorization is the process of organizing projects and programs into relevant business groups to which you can apply a common set of decision filters and criteria. Categorization is the precursor of the portfolio management processes of evaluation, selection, prioritization, and balancing of the portfolio.

  In portfolio management, three generic categories are common at a high level: run, grow, and transform the business. Run the business focuses on the short‐term, with projects related to operational continuity or the so‐called “keeping the lights on” category. Grow the business is about long‐term efficiency improvement projects, for example, to increase production or reduce cost. Transform the business is strategic, and focuses on projects that provide competitive advantages, such as adding new revenue sources or new positioning.

  For example, in pharmaceuticals, common categories include product improvement, new platform, and breakthrough projects. In information technology (IT), the portfolio can be categorized into four investment classes:infrastructure, transactional, information‐producing, and strategic class systems, according to Peter Weill, MBA, PhD, director and senior research scientist at the MIT Sloan Center for Information Research. The use of categories should help you slice your portfolio into investment classes that make sense for your organization and help you manage the portfolio effectively. The key is to make sure the classification is relevant to your business and make sure it helps highlight the important characteristics and distribution of the portfolio.

• Design and adapt the right criteria

  The essence of portfolio management is to help you make the right investment decisions based on evaluating risk versus reward. Project portfolio management adds resource availability and capacity as well as strategic alignment to the equation. The analysis of risk, rewards, and resources by itself is not purposeful unless the projects fit with the strategy and align with the business objectives.

  Figure 4.6 illustrates the five factors that combine to form the basis for sound PPM selection criteria.

  

  • Rewards are the performance potential or any combination of benefits that may include financial criteria such as ROI, payback period, NPV, and internal rate of return (IRR). Rewards also include nonfinancial or intangible benefits, such as customer satisfaction, reputation, goodwill, or effectiveness—for example, the effectiveness of a vaccination program.
  • Risks represent the probability of success or failure, based on factors like length, scope, technology, complexity, and so on. Modern portfolio theory (MPT) defines an optimal portfolio as the one that generates the highest possible return for a given level of risk. MPT was introduced by Harry Markowitz in his paper, “Portfolio Selection,” published in 1952 in the Journal of Finance. Even though MPT focused purely on financial portfolios, project portfolio management is based on similar principles. According to MPT, expected risk has two sources: investment risk, which is the risk of the individual stock, and relationship risk, which is the risk derived from how a stock relates to other stocks in a portfolio.
  • In project portfolio management, there is a strong emphasis on the evaluation of projects individually. Often overlooked or misunderstood is the relationship risk: you also need to assess the impact of individual projects on the others in the portfolio.
  • Resources are any combination of people, available funds, and budget, equipment, hardware, software, or any other assets required to do the project.
  • Strategic fit addresses how projects fit into the mix of related projects in the portfolio.
  • A project may appear to be optimal; it may have high benefits, low risk, and low resource requirements. However, if it does not fit into the strategic mix, it can diffuse or water down the portfolio's focus.
  • Example: Your IT portfolio consists of one type of technology platform, and you introduce a new project based on a different technology that is not part of the overall IT strategy. The new project has the potential to become a high‐risk project and cause a ripple effect on the overall portfolio.
  • Strategic business objectives guide the alignment of projects with your organization's overall objectives such as cost reduction, revenue growth, increased market share, and so on. Projects should be linked to one or more of these objectives, which provide a focus to align and balance the portfolio.
• Tweak and adjust the weights for each criterion

  All criteria are not equally important, and you may have assigned weights, but are the assigned weights appropriate and valid? The weights determined initially might need to be recalibrated as objectives or business conditions change.

• Adjust and balance the right mix of criteria

  Often, there is too much emphasis on quantitative financial rewards and not enough importance given to qualitative criteria like customer satisfaction, reputation, morale, prestige, effectiveness, and so on. The goal should be to have a good mix of criteria with balance between:

  • Quantitative and qualitative
  • Tangible (hard) and intangible (soft)
  • Direct and indirect
  • Short‐term and long‐term perspectives
• Focus on the relationship risk and impact of selecting one project over another

  It is common to score the projects and rank them in a spreadsheet format. But this only provides individual project analysis, which is not enough. The next step is to plot these projects to show how they compare against each other. This is typically illustrated using multivariable bubble charts comparing two or more factors. For example, Figure 4.7 depicts cost versus benefit. The bubble size is the resource requirements, and the color of the bubble represents the project classification. These charts help to visualize the relationships and impact across projects. A medical device company found it challenging to implement portfolio management in their product development PMO, as their PMO director explained, “We have four product families, and each of them has its priorities, and then we have inter‐product family conflicts.” Besides creating separate charts for each product family, and a consolidated visual at the enterprise level, the key was to help identify cross‐project interdependencies and a way to manage them. The challenge is that some of the projects in flight can't advance far enough because of interdependencies with others (for more on managing interdependencies, see Chapter 5). These charts also help provide inputs to balance the portfolio across categories.

  

• Develop and communicate the strategic road map

  The strategic road map should reflect the strategy and objectives with a list of the prioritized strategic initiatives. This should be communicated across the organization to provide transparency and emphasize the strategic priorities. The strategic roadmap helps in fostering a holistic approach and a sense of participation and ownership in the overall organizational strategy.

• Test and view PPM with strategy lens

  To ensure that PPM is indeed strategic, seek to clarify and understand strategy and test and challenge strategic assumptions. Test and challenge your hypothesis to make sure you have the right diagnosis, and your criteria are based on a coherent approach. Look for opportunities to optimize, balance, and provide better strategic decision support.

• Have the right PPM governance, with the right people engaged at the right level

  You should develop the right governance approach collaboratively with the portfolio group, PMO, or investment committee responsible for portfolio management. Otherwise, you can expect limited adoption, undermining of the process, or gaming of the scores to squeeze through favorite projects. Part of portfolio governance is to have a stage‐gate process for effective portfolio monitoring throughout the project lifecycle to facilitate go, no‐go decisions, based on progress reports and health‐checks. Governance mechanisms should also be used to drive objective decision making.

• Learn and adapt

  Remember, there is no single best approach. It is important to fine‐tune and adjust as you try to find the right PPM approach that is suitable for your organization. One size misfits all, and it is better to learn and adjust, rather than stubbornly follow the process that does not work. Try different orientation and viewpoints of the portfolio mix to gain different perspectives. No matter how hard you try, there will always be a degree of gaming due to pet projects and politics. Sometimes there is a genuine reason to keep some projects under the portfolio radar due to confidentiality or security reasons. The lesson we learned was to create a separate “stealth” category—call it category X or whatever you want. This provides a vehicle for these projects to at least be identified, without all the details. At least this way they are on the radar and people know X projects are underway and that's why capacity is maxed out.

Resource Management: Is It Possible to Defy The Laws of Physics?

Have you ever seen a situation where you have more resources than projects? The reality is that people try to defy the laws of physics and squeeze more and more despite limited capacity. Insufficient resources are the biggest barrier to effective management of strategically relevant projects, and on average 29 percent of projects have too few resources given their level of importance, according to PMI. Are you spreading your resources thinly, like peanut butter across myriad initiatives? The Peanut Butter Manifesto was an internal memo written by a Yahoo SVP to describe this problem and urging the company to narrow its focus and clarify its vision as far back in 2006.

Resource challenge is a problem not just of quantity and quality, but also people and politics and lack of strategy. This reality will not change soon; it will only get worse in a more and more DANCE‐world. Figure 4.8 illustrates the real‐world challenge of the impact of resource requirements and capacity planning in an uncertain world.

So what can you do? Instead of fighting it and blaming resource management, learn to accept it and become a master at finding ways to optimize the resource constraint based on strategy. PMOs can add value by turning the resource constraint into a strategic opportunity. Following are next generation pointers to help deal with resource challenges for the PMO:

• Get real

  Get real about the true capacity and demand. Purely relying on tools to estimate capacity does not provide a realistic picture. Resources are people and estimating the availability and productivity of humans is different than planning capacity on a factory floor. People have different levels of productivity depending on their skills, work preference, motivations, and other factors that can be hard to nail but must be considered. A formula to consider in estimating resources is to use effort duration times availability, divided by productivity. Likewise, with demand, question, whether you have the full spectrum of demand that's competing for resources.

• Turn resource constraint into opportunity

  It might sound like a cliche, but this is how the PMO can add value to the resource management process. Review the overall process and diagnose inefficiencies in the system and identify any idle or excess capacity. Review existing availability and productivity issues, study the bottlenecks, see if there are ways to leverage untapped skills or availability. Find ways to better align supply with demand in the overall business model. See how you can make this painful process easy, simple, transparent, and fun. This is how companies like Uber, Airbnb, and others disrupted their industries by capitalizing on resource inefficiencies in the system. You are bound to tap into new opportunities and a whole new perspective on resource management as you shift from viewing resources as a constraint to an opportunity.

• Get aligned to the right thing

  Alignment is a buzzword that is overused, but the question is aligned with what? Resources are typically aligned with departments or projects and programs. Alignment by department causes siloed‐thinking and a fractured approach. To break silos, alignment to projects and programs is used, but a better approach is to first align with strategy. Make sure the strategy and business model is well understood. Clarify alignment of resources to products and outcomes, instead of projects and programs activities. This is a subtle shift but can help create a sense of stake and ownership to outcomes. If the strategy is clear and everyone can see the big picture, there are bound to be fewer arguments about resource allocation.

• Robust, responsive, resilient resourcing

  In a dynamic and unpredictable DANCE environment, how can we plan resource management effectively? The traditional models rely on detailed up‐front planning in their delivery‐chain. Cemex, a global building materials company, a few years ago had an insight that led them to rethink their resource planning and cement delivery‐chain, starting in Mexico City. Earlier, they had a detailed planning and scheduling of cement delivery the day before, but typical risks of traffic, weather, and so on can cause delays, and in the case of cement it can cause wastage and cost issues. As they considered how to make their supply chain more efficient, robust, and responsive, they came up with an idea to redesign their delivery model based on the emergency management system in many cities. The ambulances are stationed in strategic locations around the city and are routed in real time based on demand and traffic, weather, and other considerations. Similarly, the challenge for the PMO is to question how to rethink your resource management strategy and make it more robust, responsive, and resilient based on real‐time demand and availability.

• Learn to say no

  Until you don't know what to say yes to and what to say no to, and how to say it, resource management will remain a challenge. The next section illuminates the problem of project termination and the importance of saying no.

ENABLING EXPLORATION AND INNOVATION

How can the PMO facilitate the balancing of the portfolio? Traditionally, there have been a number of models and matrices like the Boston Consulting Group (BCG) matrix, which assessed the value of the investments in a company's portfolio since the 1970s. The four‐field matrix categorized investments as cash cows (milk as long as you can), stars (invest), question marks (tough decision), and dogs (terminate). Other models that have been used more from a project portfolio investment standpoint have included white elephants—which take a lot of care and feeding but won't succeed or have much benefit; bread and butter—keep the lights on projects that pay the bills; oysters are the incubators—we don't know if they will succeed, but they are promising; and pearls are the gems that we want to invest in. These types of matrices have been commonly used to balance the portfolio with risk versus reward, comparing factors like probability of success versus potential benefit.

The challenge is how to classify and manage in today's DANCE and disruptive world.

As you are pushed to explore and innovate and grow rapidly, resources are spread thinly, and there is a crisis of prioritization. Start‐ups tend to be focused from this standpoint, whereas existing companies try to do too much and lack focus. Geoffrey Moore, in his book Zone to Win: Organizing to Compete in an Age of Disruption, offers a framework for managing disruptive innovation. This framework is helpful for PMOs to make sure they are focused on the right things to enable and facilitate exploration and innovation and have the right execution approaches for each zone.

According to Moore, this framework is based on two principles:

1. Disruptive innovations (which involve new technologies, new markets, and new business models) need to be managed in a categorically different manner than sustaining innovations (which, however “new” they are, do not fundamentally change the business).
2. Innovations that have a material impact on current revenue need to be managed in a categorically different manner than back‐office services and experimental initiatives.

Applying these two principles organizationally results in four zones of activity:

1. Performance zone. Current‐year revenue performance (PMO opportunity: fine‐tuning execution performance)
2. Productivity zone. Productivity initiatives to foster and fuel performance (PMO opportunity: optimize, compliance, efficiency, effectiveness)
3. Incubation zone. Incubation of future innovations (PMO opportunity: positioning to enable and support the next big thing)
4. Transformation zone. Taking innovations to scale (PMO opportunity: enable to scale the new disruptive initiative to scale, making sure it drives focus on the one big transformative initiative)

The classic misconception about innovation is that it is limited to only product innovation. However, as Larry Keeley et al. point out in their book, Ten Types of Innovation, there are multiple ways to innovate, besides focusing on the product. They list 10 types of innovation—profit model, network, structure, process, product performance, product system, service, channel, brand, and customer engagement. This is particularly relevant to project management and PMO, where they can play a role in innovation and add value. They can look for innovation opportunities in process, service, and customer engagement innovation, and to a degree in impacting profit model with cost savings or revenue impact. In the next chapter, we will see how project management and the PMO can link and leverage strategy by building an adaptive execution platform to enable and support innovation in process, service, customer engagement, profit model, and other potential innovation areas.

Innovation often is a result of serendipity and happens by accident and can't be planned for. Project management and PMOs are about execution, which requires planning and focus but also can prevent new discoveries. So how do you cultivate a serendipity engine to foster innovation? Joe Ito, director of the MIT Media Lab, talks about developing peripheral vision, which can prepare you to spot opportunities that you might miss if you are just focused on execution. The trick is to develop the ability to be able to go back and forth between the two. Besides supporting processes for performance and productivity, the PMO has to also have incubation and transformation in its peripheral vision, and make sure that the processes are not inhibiting but enabling innovation. The PMO has to support what Professor Charles O'Reilly of Stanford calls “ambidexterity”—the ability of an organization to compete in mature markets and technologies, where key success factors are exploitation of execution capabilities and efficiencies and, simultaneously, exploration in emerging markets, which requires flexibility, initiative, risk‐taking, and experimentation.

EVALUATING RESULTS, VALUE, AND IMPACT

However beautiful the strategy, you should occasionally look at the results.—Sir Winston Churchill

How will you know if the strategy is on track? Another strategy function of the PMO is to track and evaluate, benefits, results, value, and impact. According to the Association for Project Management (APM):

If value is to be created and sustained, benefits need to be actively managed through the whole investment lifecycle. From describing and selecting the investment, through program scoping and design, delivery of the program to create the capability and execution of the business changes required to utilize that capability, and the operation and eventual retirement of the resulting assets. Unfortunately, this is rarely the case.

It is not enough to evaluate the potential benefits of the project in the business case in the beginning; you have to measure and track the benefits throughout the life cycle. The PMO can chart the benefits realization management (BRM) process, provide benefit mapping templates, and educate project teams. The PMO has to create a culture where project and program managers take ownership of the outcomes and focus on both delivery outputs and benefit outcomes. We will take an in‐depth look at measurement in Chapter 8. Figure 4.9 is an example, illustrating the linkage of deliverables to benefits and objectives and strategy. For the benefits to be realized, a behavioral change has to occur. In the following example, the benefit of increased sales from the two new products will be realized only if customers act and buy the new product.

Some benefits can also be perceived by some as dis‐benefits or negative by one or more stakeholders. For example, the benefit of an expanded product line can increase operational costs and be a dis‐benefit for operations. If dis‐benefits are identified proactively, they can be managed better and even turned into opportunities, like an increased budget for operations in the above example.

The overall goal for strategic execution for the PMO is to look for opportunities to prioritize and maximize strategic benefits throughout the lifecycle. Benefits realization management should be part of the stage‐gate review governance process.

DEVELOPING PROJECT MANAGEMENT AND PMO STRATEGY INTELLIGENCE

Use the following checklist of questions to assess and develop project management and PMO strategy intelligence:

• Is the definition of strategy understood and applied in the right way?
• Is the strategy clear and understood by everyone in the organization?
• How can we do better at communicating and cascading strategy throughout the organization?
• Do our selection and prioritization criteria support our strategy?
• Are the initiatives and projects selected and prioritized to align and support the strategic goals?
• How can we better understand and tap into our strategic advantage?
• How can our decisions optimize the effectiveness of our resources and actions?
• How can we create a supportive environment for portfolio management?
• Do we have the right level of sponsorship and support for portfolio management?
• Does leadership respect and value portfolio management?
• How can we do better at resource allocation and capacity planning?
• How can we get better at project termination?
• What will we say No to if we are truly saying Yes to this?
• How can we communicate effectively for tough decision making?
• How can we craft and establish simple rules for effective decision making?
• How can we improve our capabilities with appropriate portfolio management competencies, processes, and tools?
• How can we improve the accessibility, availability, and quality of data and systems for effective portfolio management?
• What effective processes and tools can we utilize to better link strategy with execution?
• Do we have effective measures and data analytics for timely project/program decision making?
• How can we reduce and better deal with portfolio politics, gaming, and pet projects?
• Do we have effective governance with built‐in transparency for objective decision making?
• Does our culture support portfolio management by rewarding appropriate behaviors and calling‐out weaknesses or problem areas?
• How can we provide coaching and training to project managers to help them to understand project evaluation criteria?
• How can we identify lessons learned and continually refine the portfolio management process?
• How can we better evaluate the results, value, and impact of our strategy?
• Do we have a process to manage benefits realization?
• Are we too focused on execution and exploitation, and not enabling exploration and innovation?
• How can we better enable exploration and innovation?
• How can we clarify, connect, and catalyze a coherent strategy across the board in everything we do?

KEY TAKEAWAYS

• Strategy is the most misunderstood and misinterpreted word. It is not vision, mission, goals or objectives. Strategy is about diagnosing the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors.
• Projects and programs are the vehicles to implement strategy. The opportunity is for project management and PMO to be a player in both strategy and execution, and understand its role in supporting, enabling, and facilitating strategy while focusing on execution.
• Strategy is not planning—it is different than budgeting. It is the making of an integrated set of choices that collectively position the firm in its industry to create sustainable advantage relative to competition and deliver superior financial returns.
• A straightforward way to apply strategy is to question what will move the needle and what we can do widen the wedge between the top line and bottom line.
• To reinterpret and apply strategy from a project management and PMO standpoint, focus on the five strands of strategy—Diagnosis, Choice, Design, Action, and Evolve—with the application of related PMO activities of portfolio management; resource and capacity planning; results, benefits, value, and impact assessment; and support and enable exploration, innovation, and growth opportunities.
• Project portfolio management is a crucial selection and prioritization function, but often it is a capacity planning and resource allocation exercise and is not strategic. You have to raise the bar and infuse strategy into PPM by reviewing your portfolio management process and instead of using standard portfolio financial and risk criteria, identify opportunities for different categorization and criteria that impact strategy.
• Strategy is at least as much about what an organization does not do as it is about what it does. The essence of strategy is choosing what not to do. Ask the strategic question, “What are you saying no to, if you are saying yes to this?” Provide objective data and convincing analytics for justifying project termination.
• Look for opportunities to see how project management and the PMO can link and leverage strategy, by enabling and supporting different types of innovation like process, service, customer engagement, profit model, and other potential innovation areas.
• If value is to be created and sustained, benefits need to be actively managed through the whole investment lifecycle. The overall goal for strategic execution for the PMO is to look for opportunities to prioritize and maximize strategic benefits throughout the life cycle.