Cathleen Benko: Best IntentionsBy Cathleen Benko | Posted 11-15-2003
Cathleen Benko: Best Intentions
The only sure way to understand where your company is headed is to figure out where your project portfolio is taking you. Is your portfolio aligned with your strategic goals? According to the Project Management Institute, businesses in the U.S. today spend $2.3 trillion, or fully a quarter, of the country's gross domestic product on projectswhich I define as any organizational activity with a clearly defined beginning, middle and end, and an agreed-upon set of deliverables. This includes all projects, programs, initiatives and similar efforts that, collectively as a portfolio, serve as the organizational engine of evolution, innovation and growth.
Unfortunately, the proliferation ofand increased spending onprojects has grown faster than most companies' ability to manage them. During the past 20 years alone, the average number of projects in any given organization has grown more than 40-fold, while, seemingly in unison, the complexity of such projects has significantly increased.
Consider the world of IT. According to Forrester Research Inc., technology investment has more than doubled since 1992. Today's "technology spend" in the U.S. is now about half of all capital expenditures, estimates Morgan Stanley. But the problem isn't just the money involved; it's the uncoordinated, even haphazard methods used by too many companies to decide what to spend all that money on. A recent study by Gartner Inc. revealed that more than 80 percent of IT projects are conceived of and funded in a fragmented manner, with little in the way of overall planning. And fully 90 percent of companies do not employ a portfolio management strategy. The result: close to $1 trillion in underperforming corporate investment in the U.S. alone during the past five years. (Ouch!)
Both classes of related investmentstechnology spending and investments in projectsare well-meaning efforts by companies to prepare themselves for the future. So it stands to reason that CIOs and their colleagues in senior management should direct greater attention to the projects they invest in. Although project execution may be tactical, investments in projects and their outcomes are anything but a matter of tactics. The project portfolio is your organization's futurethe truest measure of organizational intent.
Why? Simply put, a company's project portfolio is where corporate objectives are translated into reality. It is the manifestation of what a company is doing and where it is going. It's where investments are made and resources are allocated. It has the full attention of management. And at the end of the day, the project portfolio is a significantindeed, perhaps the most criticalagent of organizational change.
Key to accomplishing this is to analyze how your projects sync up with your strategic intentions. Sounds simple, right? In practice, as most CIOs know all too well, alignment is hard and continuous work.
Given that a company's project portfolio must closely mirror its intentionsthe first requirement of alignmentit's critical to examine just how closely your portfolio really reflects the strategy of your organization. A warning: Your findings may be alarming. Although studies vary, it's conservative to state that, at best, no more than 15 percent to 30 percent of project investments actually align with what a company is trying to achieve.
Too many companies that invest heavily in growth have too few projects with the potential to improve business performance under way. At one high-technology equipment maker, which leads its sector by a very healthy margin, as many as 75 percent of its project efforts are focused primarily on delivering short-term results. To paraphrase the CIO at this company, it has a bad case of corporate attention deficit disorder. Unfortunately, many companies show symptoms of this very syndrome. It's not uncommon today to see companies looking for long-term growth freeze budgets or even reduce customer service efforts when they really need to improve service and increase cross-selling.
How does your company measure up? Try answering a simple question: "On balance, how well aligned is your organization's project portfolio with its objectives?" To answer this, first compile a quick list of company projects that are currently funded and under way. Choose projects based on budget size, expected impact, level of risk and the like. Second, take some time to think about the individual and collective business impact and value these projects represent. Third, based on this analysis, infer what your organization's objectives must be. In other words, mentally plot where the organization will be once the expected business results these investments represent are delivered. Finally, compare your list of implied objectives with your organization's stated intentions.
How did you do? Since these project investments represent your company's future currency, the larger the gap between your company's actual and imputed objectives, the greater the needand opportunityfor increased alignment between your project spending and the organization's objectives. But how can you tell what your organization's intentions are?
No portfolio alignment effort can succeed without a clear understanding and communication of a company's objectives. And here, every company is really trying to deliver on three different sets of objectives. Two of these will be familiar to every experienced business and IT executive: short-term, or more operational objectives, which might include incremental efficiency improvements or improving customer service, and long-term, more strategic objectives that may include revenue growth and product innovation. But there is a third type of organizational objective, which depends in part on what I call "traits"specific characteristics of a company's culture that set the tone for its ability to function in its current and future business environment.
Business leaders are grappling with the challenge of how to deliver for today while adapting for the changing business context, which is being fueled, in large part, by a confluence of linked technology advancements. The defining characteristics of this shifting landscape include increased organizational transparency, faster and faster data flows, reduced transactional friction, and the further blurring of the traditional roles of competitors, partners, sup- pliers and customers.
Trait objectives provide a structure forand the ability to measurean appropriate response to these new realities. Defining trait objectives calls into focus the behavior and thinking that can help align projectsand ultimately, the mind-set of the organizationwith the rapidly changing market and business environment.
Although the four traitsEco-Driven, Outside-In, Fighting Trim and House in Orderare new, companies are no strangers to the concepts that stand behind them. The first trait, Eco-Driven, promotes effective collaboration and takes into account the changing roles of customers and partners in the marketplace. Consider the rivalry between activewear makers Hanes and Fruit of the Loom. In the face of the North American Free Trade Agreement and mergers among retailers, Hanes "de-verticalized," concluding that it could maintain brand value without controlling manufacturing, provided that it restructured itself to successfully manage the virtual value chain that began with manufacturers, led through itself and ended at retailers. The result was increased market share and lower cost structure. Fruit of the Loom, in a vain effort to keep owning and doing it all, fell into bankruptcy.
The second trait, Outside-In, involves a mind-set where companies routinely see themselves as their stakeholders and constituencies see them, deliberatelyand consistentlydriving processes, structures and information flows toward their constituents' needs.
Hallmark Cards Inc. is a good example of Outside-In. It uses a 24/7 online community to gain insights into its customers. Visitors to its Web site, not all of whom are Hallmark customers, gather to share ideas such as recipes and decorating tips, discuss issues of interest and even make friends. The results of what was initially an experiment include fast consumer feedback and a five-times higher spending on Hallmark products by participants than before they joined the community.
The third trait successful companies will need to acquire is readiness for the coming real-time economy. They have to achieve Fighting Trimmaintaining agility and coordination, while keeping open the options required to act on new opportunities, respond to external change and contend with uncertainty.
Fighting Trim companies foster rapid, willing action in response to compelling new information. For example, the Seven-Eleven Japan Co. collects sales and other data several times during the day via satellite from its 10,000 stores and makes decisionsincorporating information such as weather dataup to a few hours before products are distributed to stores. Many of the items it sells are influenced by the weather, so having the right product available at the right time has had a dramatic impact on its inventory turn. Seven-Eleven, now the largest retailer in Japan, turns its inventory an impressive 48 times a year.
The last trait, House in Order, involves developing and maintaining an efficient intra-enterprise culture that values and promotes collaboration. Take Harrah's Entertainment Inc., a major operator of casinos, hotels and resorts. The company has spent a great deal of effort on developing a loyalty program for frequent clients. Initially, the management teams at different hotels resisted sharing information on their best clients, but with perseverance this critical information now crosses properties fluidly. The payoff was well worth the effort. Harrah's more than doubled its profits and was able to quickly recover from the aftermath of Sept. 11, restoring occupancy at its flagship property in Las Vegas by the end of that unfortunate month.
Collectively, these four traitstogether with the short- and long-term projects that make up its specific portfolioreflect your company's intentions. A quick way to assess the alignment of your organization's project portfolio with its intentions is to visually map its project investments onto an intentions framework indicating its objectives.
Figure 1 (left) shows a sample company result. To complete this exercise yourself, plot each of your projects on a similar grid. To keep it simple, just place your dots somewhere inside, outside or in the intersection of several shapes without worrying exactly where (to the far left, far right, top, bottom) the dot should fall. What do you see? If you see heavy overlap among your objectives and lots of dots clustering in the overlaps, your portfolio is well aligned in relation to your intentions. If you don't see all those overlaps, you are not alone. For example, many projects in Figure 1 are clustered narrowly around short-term objectives. For most companies, this means they've invested too much time, attention and resources into near-term projects. This might work for companies having financial problems because they can focus on maintaining their capital position and meeting short-term financial goals.
But for everyone else, it doesn't make sense. In this example, a company's long-term goals and its mind-set to change don't overlap as much as they should. When long-term strategies don't incorporate the creation of any of the traits required to ensure their ability to respond flexibly to change, it might mean that the company is being too rigid and its strategy might not hold in uncertain times.
Finally, several projects are not aligned with any objectives. Often, clandestine projects represent rogue efforts where the resources could be better deployed elsewhere. (This is particularly true of high-tech companies, where engineers abound.) But don't assume that all rogue projects are bad. Sometimes these rogue efforts are better tuned to where the market is heading; it's the corporate intentions that are in need of a rethink. Intel Corp.'s midlevel managers, using project selection criteria company-wide, for example, had pretty much driven Intel out of the RAM business in the 1980s before executives came to the same strategic realization.
For a look at an ideal project portfolio consider Figure 2. Here projects have multiple payoffs, supporting either short- or long-term objectives as well as moving the trait agenda forward.
Greater alignment is about getting greater returns from what you are already spending. And as Professor Warren McFarlan of Harvard Business School notes: "Better aligned companies simply achieve superior returns."
What is a Trait
What is a Trait?
A trait is any one of four corporate mind-sets that can help guide the organization through the rocky and uncertain waters of the future.
Promotes effective collaboration and takes into account the changing roles of customers and partners in the marketplace.
Encourages companies to see themselves as their stakeholders and constituencies see them, deliberately and consistently driving processes, structures and information flows toward the needs of those constituents.
3. Fighting Trim
Maintains agility and coordination in response to the coming real-time economy, while keeping open the options required to act on new opportunities, respond to external change and contend with uncertainty.
4. House in Order
Developing and maintaining an efficient intra-enterprise culture that values and promotes collaboration among all areas of the organization.
Cathleen Benko, the global e-business leader at Deloitte, is the coauthor, with Harvard Business School Professor Warren McFarlan, of Connecting the Dots: Aligning Projects with Objectives in Unpredictable Times. After earning her M.B.A. from Harvard Business School, she held management positions at several information technology and financial services companies.