Portfolio management — a comprehensive approach to strategy execution

Improving business performance is an existential activity. If executed correctly, continuous improvement breeds innovation, reduces wasteful effort and enhances the financial well-being of an organisation. With multiple initiatives usually underway to address business performance issues, how can an organisation confidently declare that the funding and effort is spent appropriately and will deliver the strategic objectives?

Clear identification of strategic objectives and effective strategy execution is the key. Strategy execution needs to be purposeful, disciplined and repeatable. Enterprise Portfolio Management, or simply portfolio management, is the strategy enabler for an organisation. It incorporates a comprehensive view of the entire portfolio of projects and allocates funding and resources to the most critical initiatives that directly deliver on an organisation’s strategic objectives.

Positioned appropriately within the organisation, usually reporting to the COO or equivalent, the portfolio office provides an independent, accurate and fact-based view of the portfolio performance to the executive leadership group. As the conduit between leadership and delivery teams, it also serves as a platform for programmes and projects to formalise and reports concerns that may impact their delivery and overall performance. This in turn allows for timely decisions to be made by the executive leadership group based on the portfolio office insights and recommendations.

Operationalising a portfolio management capability requires executive sponsorship, strong leadership and a resource commitment. The portfolio office can then embed an unbiased project approval and evaluation process and drive a culture of empowerment where data is shared willingly and issues are raised without stigma. An optimised portfolio management capability not only requires complete commitment of practitioners and leaders alike, but is also enhanced by a solid appetite for fundamental change management from its users.

Whether an organisation is pursuing a competitive advantage in a corporate setting or seeking efficiencies in a public organisation, portfolio management provides an ability to collectively view, prioritise and adjust funds and resources. This accelerates the process for executives to make informed decisions, execute their strategies effectively and improve overall business performance.

A structured approach to strategy execution

Operationally, most organisations follow a simple mantra for business improvement: set the vision, define strategic goals and implement initiatives that help achieve those goals. In our experience, most organisations struggle to identify and approve initiatives driven by strategic intent and to measure the success and value creation in a meaningful way.

Despite investing significant time in strategic and implementation planning, many organisations are unable to execute their strategy effectively and reap benefits from their programmes and projects because they are not set up appropriately to drive alignment between strategy and implementation. To capture the desired business benefits, three critical steps need to be followed:

1. Strategy planning and design — Understand the organisation’s strategy and the barriers to reform(the case for change) by conducting strategy review and whole-of-business maturity assessments.
2. Strategy execution — Ensure the organisation is doing the right things to achieve its objectives— enabled by portfolio management.
3. Strategy implementation — Ensure that the organisation is doing these things in the right waythrough sound programme and project management.

The missing link between strategy and implementation

A portfolio management capability or an Enterprise Project Management Office (EPMO) provides a critical link between strategy and implementation of enabling initiatives to track, monitor and report an organisation’s implementation performance against its strategic objectives.

The portfolio execution cycle demonstrates the continuous loop in which strategy and implementation are connected via the execution capability. The strategic plan is translated into a portfolio of implementation activities, and feedback from these activities is channelled through portfolio performance, which influences future strategic direction.

An increasing number of executives are realising the importance of a capability that can provide insights and recommendations about their programme and project performance at a holistic level. This portfolio-led approach leads to significant financial gains. In fact, a global survey conducted by CA Technologies in 2018 revealed that companies who embrace portfolio management principles have experienced 60% higher review and profit growth than firms who have not.^[1]

Understanding portfolio management

Portfolio management enables organisations to deliver their strategic priorities effectively. It is a deliberate approach to identifying, prioritising, funding and delivering a specific selection of priority initiatives across a function or an organisation. This approach forms the portfolio of projects, which provides a consolidated view of the priority work that is taking place to deliver the strategic objectives and allows the work to be proactively managed and optimised. It enables senior executives to make informed investment decisions by providing complete visibility of the portfolio and by actively identifying systemic issues that can derail the portfolio from achieving its strategic goals.

Such issues are reported through a discrete function embodied in a portfolio office, which monitors and tracks portfolio-wide risks, dependencies, resource demand, financial performance and benefits realisation. Collectively, the portfolio performance forms a pulse check of the organisation, allowing executives to understand how their business is performing against its strategy.

Doing the right things in the right way

To realise a particular strategy, a business needs to commit to ensuring that all ideas are considered, but only the “right” ideas are funded and then executed in a disciplined manner. A “right” idea is defined as an initiative that has a strong alignment to one or more strategic objectives of the organisation.

If introduced and implemented effectively, portfolio management ensures that resources and capital are optimally allocated to the most value-add ideas or proposals. Once these proposals are prioritised, selected and sequenced, the business then must execute them in a disciplined manner.

Integrating portfolio and change management

Organisations today are trying to keep up with the rapid pace of change, whether it’s technology-led, performance-improvement driven or politically motivated. This means increasingly shorter planning, implementation and review cycles.

The portfolio of initiatives has a purpose and is intended to deliver a strategy within the organisation. When this strategy is deliberately executed and then implemented via programmes and projects, it consequently brings about noticeable change within the business. This departure from status quo must be supported with a change management focus from the outset, not only to introduce the change effectively, but also to ensure it is sustained in the long run. Effective change management results in stakeholder buy-in, confident ownership of the new environment and improved realisation of strategy.

Operationalising portfolio management capability

Common barriers to strategy execution

Although the operational climate of each organisation is unique, there are certain common barriers that can be witnessed whilst embedding and operationalising the portfolio management capability. A lack of a robust and consolidated understanding of the organisation’s strategy is one of the biggest barriers to formulating an effective strategy execution arm. If the strategy is broadly misunderstood or loosely created, then portfolio management becomes inconsequential as a linking strategy, and implementation cannot be achieved in a meaningful way.

Secondly, the project- and programme-related data usually either exists in silos or is unavailable, which severely hamstrings the process of creating any useful data insights generated from portfolio reports (which are only as good as the data that is used to create them). The key here is to engage data owners early and actively involve them in the process of developing and implementing new reporting flows. Limited visibility of project portfolio and data issues naturally breeds ad hoc approval processes. More often than not, new initiatives are conceived or rejected in silos, leading to occurrences where pet projects are approved and strategic projects are discarded — an understandable outcome given that there is no tool that provides executives with information on dependencies, duplication alerts or strategic linkage requirements.

Lastly, the organisations also often are faced with balancing the requirements of mandated projects with crucial discretionary activities. Often they tend to swing towards prioritising pet initiatives at the cost of neglecting other potentially critical projects. This manifests into a culture of exclusion where adherence to organisationwide procedures is overlooked, resulting in suboptimal outcomes for the organisation as a whole.

Overcoming barriers

Portfolio management capability addresses all of these operational barriers. It secures and maintains a consolidated list of priority activities — the single source of truth. Armed with this list, the organisation can start reaping the associated benefits immediately. These include:

• Strategy review — A purposeful review of strategy can be mandated based on the insights generated from the identified portfolio of initiatives, related to portfolio balance and alignment (e.g., are we addressing all our objectives?).
• Strategic alignment/prioritisation — As the prioritisation process is formalised as part of portfolio development, strategic connections and approval decisions are made from the outset, ensuring the right things are done. This leads to an increased return on investment due to quicker decision making and funding of the most strategic and valuable projects.
• Documentation and standardisation — Portfolio management also mandates development and maintenance of standardised documents and capture and reporting of data. This process immediately highlights critical information gaps and solutions (or lack thereof) and allows organisations to take steps to reduce them.
• Transparency — A defined and consistently applied approval process results in increased understanding and appreciation of mandated and discretionary projects. This directly stymies possibility of funding of non-strategic projects.

Key success factors

Embedding a portfolio management capability is challenging, as it demands a significant shift in thinking and often involves modification of operational practices. We have identified eight key success factors that a business needs to consider to ensure the capability is set up for success and remains enduring.

1. Executive buy-in — Senior-executive sponsorship is required to advocate the purpose and value of portfolio management. This drives accountability from the top down and encourages accurate and timely reporting from project to programme to the portfolio.
2. Strategic focus and bold leadership — Leadership must shift focus from individual issues of programmes or projects to understanding the collective risks and impact to the strategy and make bold and timely decisions. This provides confidence to programme and project teams that the executives are prepared to take actions to resolve issues they raise.
3. Staff buy-in — Personnel required to support the portfolio capability needs to embrace the purpose and design of portfolio management and to understand its relevance to their roles.
4. Portfolio office resourcing — The portfolio team must be adequately resourced from the outset and must remain stable. A consistent team enables meaningful knowledge transfer, stakeholder engagement and the development of an enduring function that can properly discharge all portfolio offerings.
5. Portfolio office positioning — The portfolio team must be positioned appropriately within the organisation (ideally under the COO or equivalent) so that it is empowered to conduct unbiased analysis of the portfolio and make strategic recommendations to senior executives. The authority to provide independent advice enables the function to have real impact.
6. Clear communications — Impactful and regular communication is required so staff can understand, embrace and put into practice the changes brought in by the introduction of portfolio capability. Stakeholders at both executive and base levels must be engaged to ensure full commitment to the transformational change. Of significant importance is the clarity provided on the benefits to stakeholders in their daily roles and to the organisation as a whole.
7. Long-term commitment — Full implementation of a portfolio management function is a long term task, typically taking several months and requiring iterative enhancement of the framework alongside cultural and behavioural change.
8. Sound portfolio intervention — As the portfolio capability is introduced and implemented, new ways of working set by the portfolio office need to be carefully integrated into the operations. All new projects and programmes must follow portfolio guidelines and processes, whereas other ongoing work expecting to close soon (e.g., < 3 months) should be allowed to finish as planned. For longer ongoing projects, programme and portfolio teams must work closely to gradually align these activities to new processes and procedures.