Link Between Business Strategy, Project Portfolio Management and Business Success
|✅ Paper Type: Free Essay||✅ Subject: Management|
|✅ Wordcount: 5408 words||✅ Published: 7th Sep 2021|
Project management has become very important topic all over the world. Literature shows that more than 30 companies fail to accomplish its project with success due to misalignment between business strategies and project management. Many companies face this problem of missing link of business strategies and project management. Alignment is necessary for getting competitive advantage and goals of its business. Top management also play important role in alignment of business strategies and Project management.
Keywords: Business strategies, project management, alignment, project portfolio management
Project management has become very important and also serves as core function in many organizations. Projects are any temporary activities that have starting and finish point, it has performance parameters. Projects face triple constrains (1) time (2) budget and (3) performance. It was assumed that for attainment of organizational goals one has to meet triple constraints of time, budget and performance. Project management plays a vital role in achieving organizational goals and considered as backbone of organization. Project management is knowledge that meets the requirements of projects. Project management plays important role in accomplishing strategies, business goals and desired outcomes. Organizations link their projects with business strategies to achieve the goals and objectives. Strategies are activities that guide and direct the use of the resources to accomplish the organization’s vision and goals and sustainable competitive advantage. Mostly these components comprising the strategies of the business like internal analysis, organizational structures, control systems have strong links to project management processes and activities.
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Project management includes project portfolio management (PPM). PPM is about how organizations controls its projects and align them with business strategies. Many organizations are working on numerous projects and they are conscious to get maximum return of their business. PPM also includes the maximization profit which is main objective of all organization. Basically projects are bases of any organization to build up business strategy and project management relation. When organizations link their projects to their business strategy, they are better able to accomplish their organizational goals. Companies should align their business strategy with the project management action to implement the strategies in the projects. Such alignments are difficult because the objectives of business strategy are sometime not clear and well-communicated with project management. Misalignment may cause an organization to missing goals, communication gap and missing link of business strategy and project management. The lack of alignment of business strategy to the project management leads to the project failure and has adverse effects on organization performance as well. . There is need of systemic approach to align the projects with business strategy. So important in managerial challenges involved that aligning project management and business strategy and encouraging individuals to participate in using emerging strategies to create new ideas and renew existing strategies.
Literature indicates that some factors that helps in creating link between business strategy and project management if there is any gap between the bridge of business strategy and project management that should be filled to achieve high returns and competitive advantages. As literature shows that SPL elements such as spirit, strategy, organization, tools and processes that elements should be align between business strategies and project management and in depth understanding of factors that are missing and relationship of these factors with business strategies and project management. Portfolio management play important role in project management and business strategy linking. Implementation of strategies with formulation, receive less attention than formulation so there should be proper emphasis on the implementation as well as.
Therefore, this paper examines the linkage between business strategy, project portfolio management, and business success to finish the gap between strategy formulation and implementation and linking them in a bridge. There is seen a lot of importance of project portfolio management in evaluating, prioritizing and selecting projects in line with business strategy. It is choosing the “right projects” and important part of strategic management in organizations. So there are a few studies exploring single aspects of the linkage between strategies, project portfolio management. Business strategy describes the way in which a firm decides to compete in the market compared to its competitors and close the gap of these strategies with project management.
Project management has become an important issue for many corporations worldwide. Many implementations of project management have been successful, while others have been considered as failure. Projects in any organization have clearly became a central activity in many companies and considered as a backbone of organization and its success means a lot for an organization to prevail in the competitive arena. A project can be defined as a planned set of interrelated tasks to be executed over a fixed period and within certain cost and other limitations. Project management is often termed as the science and art of organizing the different project phases which may be launch of new service, a marketing campaign, building a an entire new floor of a building or a wedding.
According to Milosevic and Srivannaboon (2006), “the essence of project management is to support the execution of an organization’s competitive strategy to deliver a desired outcome”. “Project management” is defined as “management that supports the execution of an organization’s competitive strategy to deliver a desired outcome. Six-step approach can be helpful course that avoids the worst storms:
Step 1: Identify the project
Step 2: Determine the desired outcome
Step 3: Describe each of the project’s component tasks
Step 4: Identify the key players.
Step 5: Determine a time lines for each project component.
Step 6: Review, revise and reallocate.
Successful initiation of projects and its execution mostly depends upon strategy. Many companies are suffering from misaligned projects and a lack of a systematic approach to align project management with the business strategy. When organizations link their projects to their business strategy, they are better able to accomplish their organizational goals. Project strategy should be related to the projects goals and objectives in order to attain the preferred position in its competitive environment.
Strategy is defined by Patton & White (2002) as a comprehensive set of actions or activities, which guide and direct the use of the firm’s resources to accomplish the organization’s vision and goals and enable sustainable competitive advantage. Turning strategy into action to operationalize strategic objectives to achieve competitive advantage includes in the strategic management. Several scholars suggest that the success of project should be considered in the context of the achievement of the strategic goals of the organization (Dietrich & Lehtonen, 2005; Kenny, 2006) and that organizations are better able to accomplish their goals when they link their projects to their business strategy.
To ensure strategies are translated into actions they should be operational and includes some of the characteristics like structuring an organization to support successful performance and enabling success through the way in which the various resource areas like people, information, Finance, IT, etc. of an organization. Better implementation of strategic plans results in the better performance of sales growth, earnings growth, deposits growth, return on assets, return on equity, return on sales and return on total invested capital than those companies that do not implement their strategic plans.
However, in any organization there are different levels of strategies presented by different level of a business which includes Corporate Strategy: It involves high level of strategic decision making and purpose of this strategy is to achieve the expectations of the stakeholders. Business Unit Strategy: The purpose of this strategy is to achieve the competitive advantage for the services and products which are produced and the decisions in this level is concerned with the choice of products, gaining competitive advantage, to meet the needs of the customers and create new opportunities. Operational Strategy: It’s concerned with the coordination and improvement of resources which results in the effective and efficient implementation of the business unit level strategy. Implementation of strategies requires actions and completing tasks, and should focus on how to realize these strategies. Implementation must include attention to the following key points:
- Executing the work requires allocation of resources such as funds, people, and equipment. Organizational resources are limited.
- Implementation process requires project supportive organizational structure.
- A project selection and priority system to ensure strong linking between projects and the strategic plan.
Managerial challenges involves aligning project management and business strategy which encourages individuals to participate in using emerging strategies to create new ideas and renew existing strategies. There is no such research regarding the framework for aligning project management and business strategy comprehensively. The literature has highlighted that there are many projects which have been executed without implementing the strategies as it has been formulated by executives in the corporation’s level without the involvement of the project manager.
Aligning Business Strategy and Projects
Aligning the company’s projects to maximize their contributions to strategic objectives takes a highly coordinated effort. Integration requires a process for prioritizing projects by their contribution to the strategic plan. The organizations to become more competitive, efficient and profitable they will need a business and project management experts working together to attain the business goals. Both, business and project management experts will work towards aligning projects with business strategy. Alignment of business strategy and project management is a major concern for any organization. Such alignments are challenging because the objectives of business strategy are not always clear or well-communicated or consistent with project management actions. Misalignment may cause an organization to miss goals and objectives. Understanding the alignment may be one of the major challenges to effective project management process. Alignment is not a onetime task but it is achieved through progression, which demands dominant leadership, top management support, efficient communication, collaborative work environment, trust, proper prioritization, technological setup and comprehensive knowledge about the operations of the business (Luftman, 2000). In order to achieve desired outputs from the selected projects organization should have the ability to build up competencies and then allocate those competences to the preferred projects. To help make sure the corporate projects are aligned to corporate strategy following can be kept in mind:
- Is the corporation committed to using project management strategically? In most companies, hundreds of projects are underway at any given time so there must be corporate commitment to the art and science of managing projects
- Is there a policy of formally preparing project charters? Since projects are the means by which corporate strategies are executed, it is critical that they be guided by the original corporate philosophy, strategy, and intent. Project charters are the instrument for doing this.
- Is there synergy between the business group and those responsible for project implementation? There needs to be early involvement by project implementation people. While this principle may seem sound, the practice of it presents a challenge. First, business planning people may prefer to plan without the help of perceived “outsiders.” Then, there’s a good likelihood that the right project people might not be sitting about just waiting to brainstorm and analyze the early stages of a business proposal.
The value for the organization to aligning projects with business strategy in a research by the Athabasca University was conducted in more than 60 organizations around the world and results showed that there were some benefits the organizations which include:
- Saved money and resources
- Increased profitability
- Retained customers
- Increased market share
Prioritizing a project on the bases of its contribution to strategic achievement does not provide guarantee of project success but consistent allocation of resources is also a major task (Hrebiniak, 2006). A key point to make sure the alignment between project management and strategy included as: to carry out the appropriately chosen projects in an efficient ways organizations should make sure that have ability to do deliver the projects and programs. Top management plays a major role in projects alignment.
Role of Management
Management is of central importance for the success of projects. Pinto and Slevin (1998) suggested that all the researchers agree that absence of support from management especially top management and by important stakeholder are most important among all other factors. Hacker and Doolen (2007) role of top management was studied in the perspectives of vision of the project and alignment of the scope with business strategy and project sponsorship and its impact on the triple constraint of the project i.e. cost, performance and cost. Researchers various different views about the extent of knowledge of senior managers should be in relation to project management.
Some researchers suggest to the technical expertise and knowledge about the projects necessary for senior managers to develop and implement projects. Others felt that determine the line of control and to make available all relevant resources for project managers are the main functions of the senior management. There are different methods of how senior managers can be involved in the project management process. One of the approaches is not to interfere in which the project manager to all the rights of the planning to the implementation of projects. Responsibilities of project managers and executive managers is that project managers are primarily responsible for projects that are being implemented while the executives of the strategic alignment of business functions and projects with the organization’s goals.
Top managers should possess same skills and expertise as do the project managers Top management must carefully analyze which project should be prioritized in the allocation of resources.
Resource allocation is one of the critical parts of the project management. These resources include financial, human and other resources necessary for the successful completion of the projects. Top management should carefully analyze which project should be prioritized in terms of resource allocation. Resources must be allocated to projects that are aligned with corporate strategies of the organization. More simple criteria for prioritizing compliance can be or should do projects should receive the highest priority, then the strategic projects, and then the other. With the start of the training programs, coaching and mentoring for project managers, top management can help build leadership skills, so that they can manage project activities responsibly and effectively.
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Problems of Alignment
Often projects fail to support business strategies and business goals it is due to the missing link, so that it should be align. Some processes factors that affect the business strategies and projects linking such as communication, top management support, competency of project manager are some of the major factors are the necessary ones to consider which solves or even creates hurdles in the alignment process. Business directors and top management are responsible for the three processes such as business planning, portfolio management and prioritizing projects while the project managers are responsible for the process of planning and executing the projects.
Project portfolio management, business planning and support of business manager to the project manager while project manager is responsible to handling the projects. Choosing project from the AMC’s projects and aligning that project with the business plans and top manager’s suggestions. When these processes are aligned the strategic elements like goals, objectives, vision, mission, values and norms feeds the portfolio element, the portfolio element feeds the project management element like strategies, organization processes, culture, and the project management element feeds projects and the team’s execution of project. But in many cases, these processes are not aligned; as a result, organizations may fail to tie their projects either to their business strategy or to their portfolio, which may cause them to terminate the project or to continue executing projects that do not contribute to the organization’s goals, thus wasting important organizational resources.
Project Portfolio Management
The project portfolio is defined as a group of projects that compete for scarce resources and are conducted under the sponsorship or management of a particular organization. The three main well-known objectives of portfolio management are, the following: maximizing the value of the portfolio, linking the portfolio to the strategy and the continuous monitoring/assessment of the portfolio. Project portfolio selection is an important management task activity of the organization, the project team should consider all details carefully to enhance performance of organizational assets and customize them with the strategic objectives of the organization, although there are usually several projects available for selection than can be completed within the physical and financial limitations of fixed, so choices must be made to make up a suitable project.
Management problems are related to the following factors, selecting, portfolio strategy and appropriate plans. The following reasons can be related with the difficulties on managing, and on selecting, the proper projects to the portfolio a) no relationship between project selection: projects entirely with the organization’s strategic goals are not related to the impact on organization performance b) poor quality portfolios: organizations, generally, applicable to underdeveloped ideas for projects selected is not fair quality. To work on the building, d) scarce resources, lack of attention and executive skills, resources properly balance, often causing pressure to multitask ; f) Information overflow and lacking quality of information: Regardless of the quality and sophistication of the portfolio selection and decision tools, it is fundamental to obtain the proper information to make accurate decisions; g) Decision making based in power: Usually the decision is an exercise of power, which means that there may be situations in organizations where decisions tend not to reflect the organizational future success.
The portfolio management team is normally concerned and overwhelmed with issues like the prioritization of projects and the continuous distribution of personnel from the different projects to overcome the urgent crises. Although, most of the time, however, there are no resources available and when they were redistributed it often produced negative effects on unexpected places in the project portfolio.
There are more than one hundred tools and techniques for project portfolio selection hence it is not difficult for organizations to select suitable tools. It is important to adapt or develop an appropriate framework to evaluate project proposals and select a project portfolio which is aligned with the corporate strategy. Recent literature focuses on approaches rather than tools and techniques. Common principles from these approaches can be described as followings: Firstly, they suggest dividing the project proposals into subsets (Englund & Graham, 1999; Sommer 1999; Cooper et al., 2001a; RÄƒdulescu1 & RÄƒdulescu 2001; and Crawford etal., 2006). Each project subset can be a group of projects which will share the same strategic buck as discussed by Cooper et al (2001a) or different categories of projects which have similar characteristics (Crawford et al., 2005, 2006). This will help the organization easily compare projects by same criteria or same tools and techniques. This is similarly applicable to ensure the balance of the project portfolio.
Framework by Englund & Graham (1999)
4 steps producing interrelated outputs make this approach truly systematic. The 4 steps are described as follows:
- What the organization should do: Upon identified to lead the process, the team members start listing newly proposed and on-going projects. They, then, clarify or develop the expected goals of projects, taking into consideration of organizational strategies (vision, mission, objectives) and current as well as potential capabilities (either developed or acquired). It is advisable to classify projects into categories for the benefit of looking at projects from the view of ‘big picture’ inclusive of out-of- the- box thinking, completeness, gaps, opportunities and compliance with strategy. Projects classified/organized into the ‘strategic buckets’ (e.g. extent of product change: new- enhancement; and extent of process change: new incremental) enable the team ‘focus efforts on selecting the best set of projects within the categories,’ which constitute the right and balance mix. In order to facility decision making process, a set of criteria with weight or score reflecting requirements of organizational objectives (e.g. market positioning, available capacity, etc.) should be determined, modified and agreed upon for comparison and choices of projects.
- What the organization can do: the team members critically screen and evaluate projects based on consolidation and analysis of current or historical data, as a result certain new projects will be eliminated and ongoing projects will be adjusted or terminated in respect of strategic priorities; availability of resources and technology challenges, etc. The authors describe the ‘critical few’ with n screen subject to criteria sets agreed upon in step 1 e.g. screen 1- fit to goals; screen 2 market size, competence etc.
- Analyze and decide on projects: based on the comparison between resources available and resources required, projects are analyzed, prioritized and selected. The team should consider opportunity costs, project benefits before costs, return value when making decisions. With the sets of criteria agreed upon in step 1, the AHP (Analytical Hierarchy is recommended. Dedicated resources and contingencies should be committed to ensure the successful implementation of selected projects. Besides, communication loop should be developed and utilized to keep changes updated.
- Implement the plan: staffing and allocating committed resources for implementation selected projects. A database should be created for monitoring, reporting and sharing. The plan is used as a communication tool to help management team and those who are involved quickly respond to change and take corrective actions in terms of identifying new opportunities and leveraging resources.
It can be interpreted that completion of the first 3 steps in this process reflects the achievement of the three goals determined in the project portfolio selection by Cooper (2005): step 1 with ‘should’ representing project portfolio in alignment with strategy; step 2 with ‘can’ representing portfolio value maximization using most effectively its resource and capability; step 3 ‘analyze and decide’ representing right balance and mix of projects; and step 4 with ‘implement’ belonging to the next phase of execution and management in project portfolio management. The 4 steps reveal a loop of continuous stages, which is recognized as ‘systematic approach’.
Challenges in Project Portfolio Selection
Organizations face many problems such as lack of information, unreliable data of cost, time to completion, availabilities of resource, and benefits of projects.
Project proposals are randomly arriving, not at one time. This requires the model or process to be flexible so that organizations can select projects without waiting until annual planning meetings.
In large organizations with many business units, each business unit has its own list of priority and preferences. Besides, project portfolio selection is not always rational but it is biased by human being factor such as lobbying.
People resist when there is absence of strategy or vague strategy or they find difficulties in pursuing the strategies. Changes necessary for the aligning the projects with the strategy might win approval of all the members of the organization, but when it comes to implementation, no one will be ready to take the lead.
Ten Reasons why Strategy Implementation Efforts Can Fail
- The so-called “strategic plan” is nothing more than a collection of budgets and vague directions that do not provide clear guidelines for action.
- The strategy does not correspond to market realities because it has been developed by strategic planners with no grass roots input.
- The strategy does not enjoy support from and commitment by the majority of employees and middle management because they do not feel consulted in the development of the strategy.
- Middle management does not think the strategy is the right one, or does not feel it has the requisite skills to implement it, so it sabotages the implementation.
- Insufficient top management time is spent on communicating about, selling the new strategic direction, and managing the organizational changes involved.
- No provision is made for developing the new skills and competencies required by the employees successfully to make the transition and operate within the new strategic direction.
- No provision is made for instituting the appropriate organizational systems for the selection, motivation and reward of people in accordance with the new strategy.
- No provision is made for creating a close fit or coherence between the business-level strategy and the various functional-level strategies that can operationalize it.
- There are factions in the organization which disagree with the strategy because if implemented it would reduce their power and influence, so they sabotage it by deliberate actions or inactions.
- No attempt is made to analyze the culture of the organization and identify
Literature review examines four selected models that assist organizations in bridging the gap between organizational strategic objectives and project management:
Model of strategic project management is comprised of four main aspects of higher-level project management practices:
- Strategic alignment of project: This practice refers to the extent to which an organization ensures that the projects it pursues are directly tied to the organizational strategy. This is very important in terms to see whether the project going to start is intact with the strategies of the organization for its successful implementation.
- Project portfolio management. This practice refers to the identification of a project investment categorization scheme to assist the organization with prioritizing projects.
- Project portfolio management forms one of the building blocks in relating projects to strategy and can be considered as a key driver for aligning projects or programs to organizational objectives. It also helps in prioritizing and in the selection process of a project for its successful alignment.
- Program management. The Project Management Institute (2004) defines the concept of “program management” as “the centralized coordinated management of groups of projects to achieve the program’s strategic objectives and benefits”. Program management practices are inherent within the pursuit of strategic project management and are demonstrated as the management of groups of projects and the management of interactions between projects (portfolio coordination).
- The business results of projects. Since projects are financial investments, organizations should estimate and measure project impacts on organizations from a business results perspective which may include return on investment, sales growth etc.
Project managers contribute to competitive advantage due to their skills in managing relationships and an organizational willingness to foster these skills and leverage them throughout the organization, and learn from them how to manage people and relationships across organizational functions and boundaries. Green’s model of strategic project management is based on the constructs of competitive advantage, strategic capabilities and tacit knowledge management.
Model suggests that adopting strategic project management to select, manage and support multiple projects gives companies the best chance of moving the organization forward by keeping the company vibrant in the marketplace and returning maximum value for shareholders. Further, it identifies the following key characteristics of strategic project management:
- Alignment of the following key business processes: strategic planning, strategic goal setting, and enterprise project management
- Functions as a well-managed portfolio of investments as it: (a) allows for the most effective use of constrained resources; (b) ensures a high return on investment since projects are managed collectively; (c) it maintains alignment between the projects and the organization’s short, medium and long term goals
- A new management process embedded between strategic planning and project execution that manages project investments strategically and combines business planning and management with project management best practices
The term “strategic project management” as “the management of those projects which are of critical importance to enable the organization as a whole to have competitive advantage”
There is a gap between aligning project management competencies to the selection of projects that will give organizations a competitive edge. Specifically, strategy is formulated at the senior management level and for it to be implemented; it should be broken down into discrete projects. Project management becomes a source of competitive advantage when an organization outperforms other companies through the experience and knowledge built up over time through managing projects. Also, project management yields competitive advantage through the actual selection and prioritization of projects that organizations engage in and secondly, through implementation and execution of the projects.
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