24 Mar 2003  Research & Ideas

Putting the Project Puzzle Together

How can you maximize the potential of your project portfolio? Read our interview with F. Warren McFarlan, a Harvard Business School professor. Plus: An excerpt from Connecting the Dots: Aligning Projects with Objectives in Unpredictable Times, a new book by McFarlan and Cathleen Benko.

 

Project initiatives have grown too fast for companies to manage them properly. They often spring from the bottom up, meaning each project comes forward with its own narrow set of priorities and objectives. The problem: In too many companies, project portfolios are veering away from overall company objectives, resulting in squandered resources and diminished returns.

In their recent book Connecting the Dots, F. Warren McFarlan and Cathleen Benko put forward a project management process that aligns spending with strategic priorities. McFarlan, the Baker Foundation Professor at Harvard Business School, discusses his findings in this interview. Benko (HBS MBA '89), is Deloitte Consulting's global e-business leader.

Lagace: A company's project portfolio, according to you and your co-author, Cathleen Benko, is a significant agent of organizational change. Why do you think that is so?

McFarlan: Fifty percent of all capital investment today is being done in IT projects. The way this money is spent deeply impacts the organization's future. It is because of the size of investment as a percentage of capital expenditure that aligning the IT project portfolio to the company's strategy becomes critical.

Q: Most large organizations manage their portfolios as a collection of projects, rather than as an integrated portfolio. Yet, as you write, the practice of using investment portfolio management techniques to manage project portfolios has been talked about for decades. Why is project portfolio management so hard to put into practice?

A: Project portfolio management is particularly difficult because each project emerges from the bottom of the organization with very different sponsors, each of whom has his or her own narrow objective. If uncoordinated, the different projects can simultaneously hit a particular organizational unit and require so much change that the unit is effectively paralyzed into inactivity.

The portfolio approach forces all of these projects from different parts of the organization to be grouped together and viewed as an integrated whole. Twenty good projects may not make a good portfolio if, for example, seven of the twenty all impact a single department of an organization. The confusion can result in an implementation disaster. The portfolio analysis forces these issues to the front so they can be better analyzed.

Understand your portfolio by looking at it through different lenses.
—F. Warren McFarlan

Q: What is some of your basic advice for helping companies align their portfolios?

A: Understand your portfolio by looking at it through different lenses; try to benchmark yourself against best industry practices in different ways, and then make your own investments. Once you have agreed to look at it as a portfolio and have raised these issues to the surface, you have already solved half the problem.

Q: What companies do you both see as success stories in terms of aligning their project portfolios?

A: Charles Schwab is a company that has stayed aligned over a long time, as has Wal-Mart.

Q: You have spent much of your career deeply involved in management information systems. What are some enduring characteristics of successful management that you have observed? Any trends you see on the horizon that our readers should be thinking about?

A: The most enduring characteristic of a successful MIS organization is its ability to understand new technologies and launch a series of investigations to see how they can impact their organization. Out of these pilot projects, they can then decide whether this technology is so important to them that they should be a first mover (for example, Charles Schwab), or whether it is better to be a fast follower (for example, Merrill Lynch in terms of online stock trading, which waited to see whether the concept would work in the field, and then came in with money and power).

The successful organizations also have an involved information-literate senior management (for example, Cisco), as well as deeply competent, general-management-articulate IT managers who are able to translate their technologies into a language system that senior management can understand and gain comfort in. Successful organizations have a knack for being able to start projects in a way that gets continual positive reinforcement along the way.

Common Threads Tool

by Cathleen Benko and F. Warren McFarlan

book cover: Connecting the Dots

It's one of those truths of organizational life that we're so accustomed to, we hardly notice it any more: Lots of efforts duplicate one another. With the Common Threads tool, we counter this complacency with compelling opportunities for greater efficiency. Common Threads finds commonalities, often hidden, among projects that can be reused, extended, or leveraged for added value.

By promoting reuse, Common Threads creates options or choice points for the portfolio. For example, once a reuse library exists, a project that previously was too expensive may become affordable, because much of it can be built with existing components. Reuse also allows projects to use proven components—reducing risk—while increasing the speed of development. Furthermore, interoperable components can be reconfigured to create new leading-edge innovations.

...

There are two types of Common Threads: (1) up-to-date information that is held in common and (2) reusable components. The first of these is already fairly prevalent in large organizations. Take, for example, the ERP system. One of the many features of ERP is that multiple users in diverse parts of the organization can share data.

Although there are likely additional opportunities to share common data, we'll focus on the second type of Common Thread, reusable components, in describing the tool's use. It's all too common to find several projects in a portfolio expending resources to build project components that essentially duplicate one another. For example, each project might build its own Web site from scratch as a way to share information with stakeholders, or several separate programmers might code an object to extract financial data from the accounting system.

The Common Threads tool is, in a sense, a liberal adaptation of Carliss Baldwin and Kim Clark's work on modularity.1 Projects in the portfolio are first deconstructed into their composite parts. This deconstruction makes it possible to see common activities in areas such as change management, business processes, or technology. By building these components once and then reusing them, Common Threads are born. Figure 4-3 illustrates the idea of "looking sideways" and deconstructing projects in order to identify similar components that become candidates for reuse.

Figure 4-3: Common Threads

Common Threads is not about moving at the speed of the "slowest" common denominator; rather, it is sharing and coordinating at market speed. Common Threads strikes a balance between the benefits of collaboration and the benefits of quick, independent action. With these goals in mind, a word of caution is in order. When organizations see project pieces that appear similar, the natural reaction is to simply combine them. But taken to an extreme, combining projects threatens to add bureaucracy, demand greater coordination, and create monolithic projects. We recommend evaluating opportunities against a simple benefit/cost hurdle, so that Common Threads can be leveraged wisely. Reusable components span the full range of activities that projects entail, ranging from technology infrastructure, data, and application functionality to parts of business processes, the development of relationships, skills training, or even corporate policy making. While reuse of software and programming routines is an accepted practice in many IT organizations, many projects have other, less commonly recycled components that Common Threads can identify.

Reprinted by permission of Harvard Business School Press. Excerpted from Connecting the Dots: Aligning Projects with Objectives in Unpredictable Times by Cathleen Benko and F. Warren McFarlan. Copyright 2003 Braxton and F. Warren McFarlan. All Rights Reserved.

Footnotes:

1. Carliss Y. Baldwin and Kim B. Clark, "Managing in an Age of Modularity," Harvard Business Review, September-October 1997.