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.
by Martha Lagace

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.

About the Author

Martha Lagace is senior editor of Working Knowledge.