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Business leaders love talking about strategy, using words like strategic advantage, strategic intent, and strategic alignment. We often refer to “strategy” as if we have discovered something new and tantalizing—even though formal strategy development dates back to at least 400 B.C., when Sun Tzu wrote The Art of War.
After decades in a leadership role working with hundreds of companies, I have concluded that strategy has only two essential components, and both are designed for warfare. Whether on the battlefield or in the boardroom, strategy is designed to either defend or attack in order to achieve a desired vision or outcome.
In business, we develop strategy to mitigate known or anticipated threats (competitive or otherwise), or to pursue opportunities that evolve or transform our enterprises. But while most organizations are adept at developing strategies, many still struggle to transform strategy into sustainable results while efficiently running the business. Research continues to confirm CEOs’ lack of confidence in their organizations’ ability to execute reliably. One of the greatest obstacles is lack of prioritization discipline. You simply cannot do everything that you want to do or that generates some value. Focusing resources to strategy and compromising day-to-day performance is not an option and a recipe for disaster. The organization must do both well and not confuse the two. This is why strategic portfolio management (SPM) and the associated prioritization and resource planning are so critically important.
The typical business strategy consists of specific goals and imperatives identified by the executive team; strategic initiatives developed by functional heads and/or business unit heads with input from respective staffs; and programs and projects developed to support and assure realization of the initiatives. Although operations and other functional groups initiate projects to drive continuous improvement or address other opportunities, these projects are seldom generated as a direct result of the business’s strategic plan or cascading strategic initiatives. However, the projects are important because they typically support the base business and either maintain or improve operational performance. They are best validated, prioritized, and resource-planned through a project portfolio management system that is independent of the strategic portfolio.
Strategy execution and realization require a focused group within the organization that is well positioned and authorized to carry out its strategy and ensure the corresponding sustainable benefits.
Focus is absolutely critical to assuring execution. This has been proven time and again by our military and high-performing innovative organizations that must evolve quickly to remain relevant. Businesses benefit greatly from establishing a discrete strategic portfolio—a technique used for years in many industries, including technology, life sciences, and aerospace.
A strategic portfolio includes the initiatives (programs and projects) that most directly address the strategic imperatives and goals identified and defined by the executive team. The strategic portfolio is managed by a strategic realization executive, typically VP level, who leads the Strategic Realization Office (SRO).
The SRO is responsible for strategic communications up and down the organization. It ensures that the strategic imperatives are communicated to functional or unit heads and that the strategic initiatives, generated by these individuals, are properly vetted for alignment and justification.
The SRO assembles the prioritized strategic portfolio along with resource requirements (people and dollars) and recommends it to the executive team for approval. This includes a determination of whether to invest the resources or determine the appropriate level of investment. This is often referred to as “drawing the line.” Projects above the line are deemed critical and will receive the people and funding to assure completion. Projects below the line are postponed, held for future consideration, or dropped.
Once the strategic portfolio is approved, the SRO resources are responsible for assuring the efficient planning and execution of the strategic initiatives (programs and/or projects). They are also responsible for establishing the project management tools, processes, and systems to assure consistent application through the enterprise, especially communications. If the executive team adds or deletes projects, the SRO rebalances the portfolio to mitigate resource dilution and ensure proper resource allocation.
Because many strategic initiatives are cross-functional, they directly or indirectly influence the work and resources within the functional groups. As part of resource planning, the SRO determines whether or to what extent the functions can support a strategic initiative or looks to augment staff with outside resources. If a project has been deemed a priority by the executive team, it must be internally or externally resourced. Too often organizations stretch resources, causing frustration, inefficiencies, and extended timelines. Strategic projects should be justified through strong, well-documented business cases that include return on investment (ROI) analyses and payback calculations. These analyses should include the costs associated with assigning the appropriate resources. It is hard to imagine that a strategic undertaking would be pursued without a discrete ROI. Unfortunately, this occurs more often than you’d expect.
Projects generated through the annual planning and budgeting process should also be well-defined, justified, prioritized, and entered into a project portfolio. Again, this list typically far exceeds the organization’s resource capacity and the acceptable spending threshold. Depending on the size of the organization, this portfolio can either be managed by separate project management offices (PMOs) that reside at a functional level (IT, Engineering) or by an Enterprise Project Management Office (EPMO). There are various models that can be applied, based upon the size and complexity of the organization, the aggressiveness of the strategy, and the sizes of what are considered “typical” strategic and operational portfolios. What is most important is to focus the SRO on the programs and projects within the strategic plan.
Establishing the SRO and putting in place all of the processes to assure that the right and highest value-generating projects are identified, prioritized, and resourced still does not guarantee success. Foundational to achieving strategy objectives is the ability to plan and execute reliably and consistently. This is where program and project management come to the forefront.
Industry statistics show that the average life span of most PMOs is only four years. The reason is simple: They fail to deliver value. After almost 34 years of professional project management, I can attest that the primary reasons for failure are lack of leadership and discipline. Too often organizations establishing PMOs or SROs look to a subject matter expert rather than individuals who can inspire and engage. Without the right people, the United States would have no Special Forces who constantly achieve their critical missions. Likewise, without the right people and the disciplined application of project management and change management practices, the likelihood of executing project portfolios efficiently and reliably is diminished.
While operational structure, resources, processes, and tools are important to achieving strategy realization, these alone will not get it done, nor enable sustainable performance. What is most overlooked is the impact of culture on organizational performance. While most CEOs readily admit that culture greatly influences performance and the ability to execute strategy, they rarely consider cultural enablers and inhibitors when planning and implementing strategy. It follows that a cultural assessment should be part of any strategy. This may result in a need to address cultural deficiencies as part of the strategic plan.
It is important in all cases that the organizations’ limited resources be focused to those things that will generate the greatest enterprise value. These are the activities that assure the highest ongoing operational performance and will enable the organization to best defend itself against major threats and position itself to maximize opportunities.
Strategic Portfolio Management and the Strategic Realization Office are but components of a business model. The magic is not in the model, the tools, or processes, but in executive commitment, culture, discipline of process application, selecting the right leaders for the SRO, employing change management, and establishing, applying, and maintaining high performing project management capabilities. Remember, nothing matters if you cannot execute well.
Author: C. Richard Panico
President & CEO, Integrated Project Management Company, Inc.
Service: Strategic Realization
Industries: Life Sciences | Healthcare | Consumer Products | Industrial Products