Strategic portfolio management

Strategic Portfolio Management

Strategic portfolio management focuses on the question: are we doing the right things? To be able to determine this, you need to have an overview of all projects / initiatives within the company. And that is not so easy ...

Through time, budget, quality ...

In the past, program and project management focused on delivering programs and projects on time, budget and quality. When many such programs and projects were running, a level was set 'above' and this was referred to as portfolio management. Since most projects nowadays are mostly IT-driven, the program and portfolio management was transferred to the IT department.

The theory dictates that the link with strategy is made at the portfolio level. In practice this proves to be difficult to achieve. The focus is often more on doing things correctly and as efficiently as possible, rather than creating actual customer value. Programs or projects are rarely stopped prematurely. The business is often not in the lead.

Towards a new reality: Strategic Portfolio Management

With the emergence of Strategic Project Management, Agile, Lean, Design Thinking and Lean Startup, the organizational landscape and the way of innovation has changed significantly. Organizations use more different development processes for different types of innovation. More and more organizations are focusing on the very first question that should be answered: we are working on the right things? In other words: do the initiatives we want to realize (I deliberately no longer refer to projects) contribute to commercial value? Is the customer waiting for this and does it really fit within our strategic direction? Only then should organizations answer the question how to realize this initiative. In other words: they get started with Strategic Portfolio Management.

Strategic Portfolio & Project Management

We now see that more and more organizations are shaping Portfolio Management from a strategic angle. In larger organizations, the hierarchy of projects, programs and portfolios traditionally looks like this:
Project portfolio management

Putting portfolios, programs and projects in perspective (from van Heerden et al, 2015)

We now add a level, the umbrella portfolio, or the portfolio of portfolios. From this perspective it is easier to actually oversee the contribution to strategy. For example, by making a distinction between Running the Organization (Business as Usual) and the horizons of innovation a better estimate can be made of the extent to which an organization is concerned with long-term continuity. By making a breakdown of the portfolio into strategic themes, we make it clear whether sufficient efforts are made on certain themes. Moreover, we often see that several business units are busy with the same things. From a portfolio management perspective it can then be critically assessed whether all these projects are really necessary. So-called 'hobby projects' are also visible more quickly.

Portfolio strategy at business unit level

Of course we translate the organizational strategy to business unit level. Because the overview has been improved at the organizational level, it is also easier to apply more focus at the business unit level. For example, a particular theme is assigned to one business unit. Normally, the business units are mainly concerned with the Business as Usual and Horizon 1 initiatives, or improvement / renewal of current products and services. If a business unit is put in the lead with regard to a specific theme, this can provide new energy and impetus.

Horizon 2 and 3 as a business unit

Horizon 2 initiatives are new to the organization, either in technology, market or business model. Initiatives in Horizon 3 often revolve around completely new technology, whereby the organization mainly wants to learn what this can mean in the future. Horizon 2 and 3 initiatives should actually be managed in a different way. It is then useful to make clear agreements about this in the governance. In addition to other management, a different realization process often applies (e.g. design thinking, lean startup)

The point is that the administrative suspension makes it clear that the initiatives falling under this business unit are 'different' in nature. The 'business unit' has its own budget and can weigh up initiatives against each other. As a result, we compare apples with apples, and not with pears. This is exactly what happens when an organization has to choose between a Horizon 1 and Horizon 3 initiative.

Agile in combination with traditional waterfall

Many companies nowadays work Agile. However, not all initiatives can be managed or executed in an Agile way. What we see in practice is that a combination often takes place. At an organizational level, you still want to be able to oversee the entire portfolio of projects and agile initiatives. For that reason we position epics at the same level as a project. After all, if you look at the process of Agile portfolio management, the working method is not much different than with traditional project management.

Source: http://theburndown.com/2018/01/15/safe-portfolio-management/

Strategic Portfolio Management New Style

If we visualize the above things, we arrive at the following picture:

Strategisch portfolio management

Op corporate level one determines the vision of the future, and one chooses which role the organization wants to play in it (mission). On strategic portfolio management level the portfolio of portfolios is inventoried, assessed and adjusted, related to the strategy. This not only looks at current initiatives / projects, but also at the current product portfolio. After all, choices have to be made here too.

It makes sense to make the following splits

  • Running the Organization / Business as Usual
  • Horizon 1, 2 and 3
  • Strategic themes
  • Technologies
  • Customer segments.

Op business unit portfolio management level / tactical level the strategy has been translated into sub-goals. The portfolios at this level are related to these sub-goals.

On the bottom operational level there are programs, projects, epics (in case of agile) or experiments (in case of H3, ventures, etc.). Here we want to be able to see the progress, whereby each type of innovation can use a different process. It is important, however, that we apply phased funding, so that initiatives can also be stopped prematurely. For this we formulate clear and applicable qualitative and quantitative criteria.

The changing role of the project manager and product owner

The more strategic approach to portfolio management also affects the project manager and product owner. He / she will:

  1. In addition to managing on time, quality and budget, he must also justify whether he is still working on the right things. This means that there must be an interim assessment of the desirability of the project.
  2. Must learn that stopping a project or initiative prematurely does not have to have anything to do with personal failure. It could be a result of changed market conditions or strategic reprioritisation.
  3. More and more must be the networker who ensures that cross-functional teams can perform optimally.
  4. Become personally or jointly responsible for correct reporting at initiative level so that the necessary information is available at portfolio level.
  5. Due to phased funding, there will also be less focus on extensive PIDs (project initiation documents), etc. This can now be done at a higher level. Instead of doing the focus of the reporting in advance, this shifts to interim reporting. This does not mean any aggravation. The purpose of strategic portfolio management is precisely to stimulate, not frustrate, the progress of initiatives. Reporting therefore takes place on the basis of interim decision-making and accountability thereof. So not on the progress of deliverables.

Summary

Strategic portfolio management ensures that there is an overview of the entire portfolio at the highest level and that it contributes to the strategy. Strategic portfolio management ensures that there is a balance between the horizons and strategic goals. As a result, the project portfolio can often be considerably simplified and rationalized (= cost savings). In addition, it ensures that various methods such as waterfall and agile can co-exist in one portfolio.

Strategic portfolio management is not only a way of gaining insight and overview, but above all a means of shaping strategic management.

 

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