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The 6 Principles of Strategic Portfolio Management: Value, Creation, Focus

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 By: Don Creswell,
Co-founder & Vice President, SmartOrg Inc.

Value creation focus is a strategy by which all stakeholders
involved in decision making answer a simple question: how does everything we do
contribute to creating economic value for my organization?
In an ordinary setting that lacks focus, peoples' objectives
tend to be driven by personal agendas, functional perspectives and individual
biases. There is no structure ' metrics and analytics are not clearly connected
to value creation, or they are manipulated to advance personal agendas. Without
a focus on value creation, information is more likely to be selected to support
personal agendas or positions, resulting in the application of irrelevant
information to arrive at decisions.
By focusing on value as a prime metric, when managing the
strategic portfolio, we ensure that a forum is created to allow individuals and
groups to think clearly about economic and strategic issues, and creatively
about how to improve the value of their portfolio. In this scenario, metrics
and analytics inform analysts, giving them an understanding of economic
outcomes that drive universally beneficial choices. By focusing on value, all
information needed to inform value creation is put on the table, both positive
and negative, and is, ultimately incorporated into neutral evaluations.
Let's look at a case study involving too many projects and
not enough resources ' what would you do in this situation?
A high-tech packaging company that had built on
tremendous innovation in materials and design over the decades was facing
serious challenges. They were looking at a marked increase in global
competition and an erosion of the advantage the company had in the market. Its
products were increasingly undifferentiated, their margins were dramatically
eroding, and R&D and NPD had failed to produce anything really new and
exciting.
Their portfolio was choked with R&D and NPD
proposals. The CEO was demanding more innovation, but cost reduction and
incremental projects were inhibiting innovation, which created a lot of churn
and debate. Projects started to struggle for resources, with over 70 projects
on the table, with only the resources to support about 15 of them.
They tried traditional evaluation approaches. The CFO
created a business case in finance terms based on gathered relevant data,
modeling it after a successful capital investment process. They used a
project-management approach, assigning clear project leadership responsibility,
forming teams, creating plans with clear milestones and deliverables. They
pursued the beset plans and held people accountable.
They looked at their resource allocation, addressing
the core issue that certain resources were over-subscribed. They created
resource manager positions to assign key resource based on guidelines and
situation specifics.
They created scoring rules by defining essential
criteria such as strategic fit, size of opportunity, technical difficulty and
investment, and then they assigned a score for each project on a scale of 1-5
based on each dimension, taking the weighted measure to arrive at a 'figure of
merit.'
None of the
above worked.
When asked 'why'? the executives commented on how these
traditional approaches failed their business:
'Business cases strongly favored incremental projects.'
'Project management methods created more work on
projects we would (ultimately) cancel.'
'Resource allocation efforts abdicated the company's
most important investment decisions to relatively low-level managers.'
The company
turned to emphasis on value creation ' and it worked.
'When we got cleaner about value, many project leaders
voluntarily cancelled their own projects; they realized they could better
direct their efforts to higher-value projects.'
'We reduced our portfolio from 70 to 20 projects,
improving the return by more than 100 per cent.'
Focusing teams
and decision makers on identifying the relatively few factors that drive value
is fundamental to developing value-based, believable business cases for the
strategic management of project and project portfolios.

This
is the third in a series of blogs on The Six Principles of Strategic Portfolio
Management. Subsequent blogs address each of the six principles in detail. For
further information about SPM processes and decision-support software, visit www.smartorg.com or contact info@smartorg.com

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