Over the past years I have seen Portfolio Management evolving from a purely administrative process attempting to more or less prioritise and select projects; to one of the most important frameworks to enhance the strategic dialogue amongst its management team, aligning them around the most critical strategic initiatives, and focusing the organisation on strategy implementation. This is starting to be used is applicable both for Corporates and Governments.
I recently talked on the latest developments in Portfolio Manager with PMI Today. My views are based on my own experience as Head of Portfolio Management in three leading multinationals, as well as from the dozens of workshops I facilidated with top executives and senior governmental officials around the world.
Here is the interview.
PMI Today: Why is effective portfolio management so critical to strategy implementation?
Mr. Nieto-Rodriguez: I believe that one of the main reasons that many companies fail is due to a lack of mature portfolio management practices. Nokia collapsed due to poor portfolio management. It is well know that they developed the technology for the smart phones earlier than most of their competitors, yet they decided not to launch projects in this field and focus on exploiting the success of their existing products. With the right portfolio management process and an execution mindset in place, I am convinced Nokia would be still one of the leading telecom operators in the world. Kodak is another well-known case that shows us why there is a need for organizations to have sound portfolio management practices in place to support the executive team in implementing their strategies.
PMI Today: Can effective portfolio management enable projects and programs to be more aligned to organizational strategy?
Mr. Nieto-Rodriguez: Probably the most important benefit of implementing organizational portfolio management is that it helps to align most of the projects and programs to the organization strategies. All the theories that you find about the topic will tell you that all you projects and programs should be aligned to one or more of your organization’s strategic objectives. However, the reality of an organization is much more complex. Sometimes the strategic objectives are not clear, or nonexistent. Often, there is a gap and lack of alignment between the corporate strategic objectives and the ones from the different business units, departments or functions.
In reality, it is impossible to match all your projects and programs to strategic objectives. I prefer to focus and ensure that at least the most important projects and programs—let’s say the top 20 projects/programs—are fully aligned with the strategic objectives.
Portfolio management also requires cross-checking and validating that all the strategic objectives have means (and resources allocated) to be achieved, both in the short as well as in the long term, either through day-to-day activities or through projects and programs. In the case of Nokia, for example, they forgot to do this cross-checking; they didn’t have any projects to introduce the new technologies their R&D department had been working on.
PMI Today: What are some of the ways organizations can make their portfolio management more effective?
Mr. Nieto-Rodriguez: After implementing and leading the portfolio management practices in three multinationals in three different sectors, I have learned that in order to make it more effective you need to keep in mind the following three techniques:
- Keep your approach simple and pragmatic;
- Use executive business language when presenting to executives; and
- Focus on the most important initiatives instead of trying to cover the whole spectrum of projects.
PMI Today: Can you give examples of companies that have improved their results by prioritizing effective portfolio management?
Mr. Nieto-Rodriguez: Over the past 15 years I have held portfolio management executive positions in a large telecom operator, one of the largest banks in Europe and recently at a leading pharmaceutical company.
All these companies have seen major improvements in several areas:
- Cost reduction of about 15 percent in the area of project management from stopped projects (including reducing duplications, consolidating projects and decreasing budget overruns);
- Increased success rates of the most strategic projects;
- Increased alignment and focus of senior management teams around the strategic priorities and the strategic projects of the organization; and
- Most importantly, an execution mindset and culture.
Outside of my personal experience, I did research for my book on how other organizations were using portfolio management. It didn’t surprise me to find out that plenty of leading organizations apply portfolio management as part of their strategic management cycle. Some of them are well known, such as Apple, Amazon, Lego, Ikea and Western Union.
PMI Today: What is the relationship between effective portfolio management and risk management?
Mr. Nieto-Rodriguez: Portfolio management should be always linked to two organization-wide processes: the organization’s budgeting cycle and enterprise risk management process.
The most traditional way to look at risk management from a portfolio management perspective is to consolidate the risks of each individual project on a global level. However, more recently, I have been looking into risk in a different way after years observing how executives take decisions on which projects to invest. If the risk appetite of the senior executive team is very low, they will tend to do as many projects as possible; they don’t want to take the risk of not being compliant, missing a market opportunity, not having the latest technologies, and so forth. On the other hand, if the executives are risk takers, they would tend to focus much more. It is another way of looking at risk management linked to portfolio management—doing the right projects—that I think it will develop over the next decades.
PMI Today: How can companies make portfolio management part of the corporate culture? Why is this important?
Mr. Nieto-Rodriguez: One of the main benefits I have seen every time I carry out the first round of prioritization with top management is that the discussion turns into a very interesting strategic dialogue. For example, the CEO might ask the director of sales, “How are we going to meet that international growth target if currently we only invest in existing markets, or compliance takes up to 60 percent of our project capacity? Is this sustainable in the long term? What would be the consequences of balancing our portfolio and investing more in growth and cost optimization, and less in compliance?”
The purpose of portfolio management is to enhance the strategic dialogue at the top of the organization, which it is then cascaded to the rest of the organization. Once you lead the executive team to understand this, portfolio management gets embedded in the organization and its corporate culture.
PMI Today: Can project and program managers do their jobs with a “portfolio mindset”? How?
Mr. Nieto-Rodriguez: I have seen that happening in all the companies I have worked for. I have seen how low profile project/program managers, immersed in the middle of the organization, have grown to become project/program leaders, taking the responsibility of execution one of the top 20 strategic programs in the organization and reporting to the executive team.
To do that career leap, project and program managers need to change their mindset, expand their knowledge about the organization, and learn their products, services, market and competition. They should understand the main concerns of the executive teams. You can convince leaders of the value of project management and project managers if you link your project/progam to all these matters and express how your project/program can address some of these issues and take the organization to the next level.
This reflects the PMI Talent Triangle™ of leadership skills, technical skills, and strategic and business management.
PMI Today: One of the issues in making portfolio management more effective is resourcing projects correctly. What are some things portfolio managers need to consider when deciding on staffing projects?
Mr. Nieto-Rodriguez: This is one of the most complex matters when diving into the details of portfolio management. In large organizations, we are talking about thousand of people working full or part time in projects. The challenge comes for all those resources contributing to projects in addition to their day-to-day operational responsibilities. I call these resources contributors (from departments like IT or finance). They are providing resources to some of the strategic projects. This is where most of the bottlenecks are found.
Here as well, I recommend focusing on resourcing the most important projects and getting the commitment from the different departments on staffing for those projects. With their remaining resources, allow some flexibility and leave it up to each department to decide and execute their own projects as well.
PMI Today: Another issue that causes portfolio managers to lose sleeps is decisions to terminate projects. What should portfolio managers keep in mind when facing these decisions?
Mr. Nieto-Rodriguez: When I started working in portfolio management more than 15 years ago, I thought like most people in our profession, that terminating projects was terrible. If a project was not be doing well, the common reaction would be: “How is it possible to stop a project? No, we should continue working on it until it is completed, whatever it takes.”
Over the years I have come to learn that for every project we stop, the organization becomes more focused. Every terminated project is an opportunity to learn and do better next time.
Now I am a big believer, and have seen it on my own jobs, that stopping projects once in a while is very healthy for any organization as long as the learnings are embedded back in the organization for further projects.