How to reinvent portfolio management

Drawing on his new book, the Harvard Business Review Project Management Handbook, Antonio Nieto‑Rodriguez shares a new framework for prioritising projects.

The emergence of projects as the economic engine of our times has been quiet but is incredibly disruptive and powerful. Back in 2017, I coined this phenomenon the ‘project economy’, to highlight the unprecedented transformation with profound organisational and cultural consequences. According to recent research, the value of project‑oriented economic activity worldwide will grow from $12 trillion (in 2013) to $20 trillion (in 2027). Add to this the trillions spent on COVID‑19 pandemic recovery projects.

Yet our methods were designed for a world in which projects were a small fraction of an organisation’s activities, while most of the resources were dedicated to operations. In the project economy, project‑based work becomes the main unit of work; and operations need less and less resource to be carried out. Basically, all the current project, programme and portfolio management methods, tools and techniques are ‘old’ and need to be adjusted.

Portfolio management techniques, such as the prioritisation of individual projects based on business cases, strategic goals, intangibles, weights, etc, could work when an organisation had a few tens of projects, but today, organisations have hundreds or even thousands of projects. Applying those old methods leads to a huge amount of bureaucracy, wasted time and management scepticism about our added value. 

To succeed in the project economy, we need to reinvent project management, and one way is by reinventing the prioritisation of projects in our portfolios.

A better way to prioritise

Prioritisation is vital to individual and organisational success, yet the method of prioritising is little understood and often neglected. Capacity and gut feeling, rather than strategy and facts, often determine how we prioritise projects. Prioritisation sets the agenda in terms of what really matters and, consequently, how resources are allocated. In my experience, a primary reason why many organisations fail is their lack of a clear sense of what is urgent or simply their selection of the wrong priorities. Get your priorities wrong and the effects can be calamitous.

If the executive team doesn’t prioritise, middle management and employees will do so on their own.

At first, this shouldering of responsibility by the lower ranks may sound like good practice, but without a prioritised set of strategic objectives, the consequences of the selected projects are often disastrous. In a vacuum, employees will base their priorities on what they think is best for the organisation – or perhaps what is best for their business unit, department, team or just themselves.

A popular misconception is that all of an organisation’s projects should be aligned to one or more of its strategic objectives, but because most organisations are multidimensional, it is impossible to match all projects to strategic objectives. For example, continuous process improvement, outsourcing and regulatory projects keep the organisation running efficiently, but they are seldom related to strategic objectives. I recommend that at least the most important projects and programmes – let’s say the top 20 projects – be fully aligned with strategic objectives.

To prioritise projects effectively, leaders have to recognise and articulate what really matters most. To address the prioritisation challenges I have faced over my career, I developed a simple framework called the hierarchy of purpose. Boards of directors, executive teams and even individuals can use the tool to rank priorities and select their most important projects. The hierarchy of purpose is based on five aspects: purpose, priorities, projects, people and performance. Only when an aspect has been pinned down and fully understood should the organisation move on to the next.

The five aspects of the hierarchy of purpose

1. Purpose

Vision and mission have been popular concepts, yet they tend to be made up of fancy words often developed by consultants. The two terms are often confused, their differences not well understood. Use the word purpose instead. State the purpose of your organisation and the strategic vision supporting this purpose. The purpose has to be sharp and clearly understood by everyone. Amazon’s purpose, “to be earth’s most customer‑centric company”, is compelling enough to avoid any ambiguity. Ryanair is very clear about its purpose: “to offer the lowest fares possible and reduce flight delays”. Interestingly, the airline puts efficiency and performance – two important objectives that many leaders struggle to prioritise – before customer service.

 

2. Priorities

The number of priorities an organisation declares is revealing. If the risk appetite of the executive team is low, the executives will tend to name many priorities; they don’t want to risk not having the latest technology or missing a market opportunity. On the other hand, if the executives are risk takers, they tend to have a laser‑like focus on just a few priorities. They know what matters today and tomorrow. As a project leader, you should define what matters most to your organisation now and in the future. As the previous example of Amazon showed, its purpose clearly puts the customer in the centre. Everyone working at Amazon will know that when they have to make decisions, the ones related to customers will always come first. Or as Emma Walmsley, CEO of pharma giant GlaxoSmithKline, clearly stated in its 2012 annual report: “Everyone at GSK is focused on three priorities: innovation, performance and trust.”

 

3. Projects

Strategic initiatives and projects, when successfully executed, bring the organisation closer to its purpose and strategic vision. Nowadays, companies run many projects in parallel, mostly because it is easier to start projects than to finish them. Capacity rather than strategy often determines the launch of projects. If people are available, the project is launched, but which projects should organisations really invest in? And who wants to risk missing a big opportunity? By uncovering the organisation’s purpose and priorities, senior executives can identify the best strategic initiatives and projects to invest in. They can also take these steps to identify projects that should be stopped or scrapped. Although theorists suggest developing formulas that automate the process of prioritising and selecting ideas, my recommendation is not to use such a systematic approach. The exercise is mainly to provide management with different orientations and viewpoints, and ultimately the decision has to be made by management based on human intelligence.

 

4. People

Prioritising at an organisational level is incredibly difficult. Large organisations are made up of individuals with their own strong sense of what matters. Every individual in an organisation has a unique list of priorities. These are by their nature self‑serving, informed as much by personal ambition and aspiration as by any sense of alignment with the organisation’s strategy. Employees are those who implement the company’s strategies. They perform the routine business activities and deliver the projects. They also have to make many minor decisions and trade‑offs every day. Creating clarity around the priorities and the strategic projects of the organisation will ensure that every employee pulls in the same direction. Leaders need to allocate the best resources to the most strategic projects and liberate them from daily operational tasks.

 

5. Performance

Traditionally performance indicators don’t measure priorities and seldom indicate the progress made toward fulfilling a company’s strategy. Project metrics tend to be lagging indicators and measure inputs (scope, cost and time) instead of outputs. Inputs are much easier to track than outputs (such as benefits, impact, sustainability

and goals). As you work through the hierarchy of purpose, identify indicators linked to the organisation’s priorities and to the outcomes expected from the strategic projects. Less is more in this case, so one or two for each area will do the job. When Satya Nadella took the role of CEO of Microsoft in 2015, he announced a new corporate mission: to push productivity, everywhere, across all platforms and devices. Pursuing that mission meant changing the way the company measured success. In an interview with The Verge, he explained: “We no longer talk about the lagging indicators of success, right, which is revenue, profit. What are the leading indicators of success? Customer love.”

 

The benefits of the hierarchy of purpose

Organisations that have a highly developed sense of priorities are in a powerful situation and benefit from a significant competitive advantage. By applying the hierarchy of purpose, an organisation can significantly reduce its costs because it can stop any low‑priority activities that fail to deliver against clearly articulated measures. Through these approaches, organisations can also reduce duplication, consolidate activities and decrease budget overruns. Overall, prioritising increases the success rates of the most strategic projects, increases the alignment and focus of senior management teams around strategic priorities and, most importantly, leads to an execution mindset and culture.

A major hidden benefit I have seen every time I have used the hierarchy of purpose for the first time with top management is that the discussion turns into an 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 if compliance takes up to 60 per cent 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 optimisation, and less in compliance?” Think of your organisation’s purpose and priorities. Are all your employees working according to those priorities? Are the activities prioritised in the best interests of the organisation as a whole? How would your priorities change if there were a sudden economic downturn?

We need to move past traditional project scopes and goals; the projects of the future will seek to make a better world through broader and more ambitious impacts in areas such as sustainability and diversity.

THIS ARTICLE IS BROUGHT TO YOU FROM THE AUTUMN 2021 ISSUE OF PROJECT JOURNAL, WHICH IS FREE FOR APM MEMBERS.

This article is adapted from the Harvard Business Review Project Management Handbook: How to launch, lead and sponsor successful projects, by Antonio Nieto‑Rodriguez (Harvard Business Review Press, October 2021)