Cathleen Benko often asks CEOs this question: "If you want a leading indicator of what your organization will look like three to five years from now, where would you look?" "The answer," she says, "is usually, 'My strategy.' But this answer reflects where CEOs want to be. Where you will be is typically reflected in your project portfolio. It's the truest measure of organizational intent."
Cathleen Benko is the global e-business practice leader and national technology segment leader for the Technology, Media, and Telecommunications Group of Deloitte Consulting, a principal SAP implementation partner. She is also co-author, along with Professor F. Warren McFarlan of the Harvard Business School, of the book Connecting the Dots: Aligning Projects and Objectives in Unpredictable Times (Harvard Business School Press, 2003).
Benko is the global e-business practice leader and national technology segment leader for the Technology, Media, and Telecommunications Group of Deloitte Consulting and an expert on alignment issues. With the increased emphasis on efficiency in IT spending, she believes that it is imperative to ensure that key projects and initiatives are aligned with the strategic objectives of the firm. She shares some of her thoughts on this important topic.
Understanding Where You're Headed
"If you want to see where you will be tomorrow, look at the investments you're making today, not the plans," says Benko. "If your portfolio isn't aligned with what you say you want to do, then you have two choices: Change what you say you want to do to what your portfolio reflects, or make adjustments to your portfolio."
Benko further points out that portfolio evaluation is not a one-time event. "The process is continuous, and portfolios must be recalibrated regularly. Once a project is approved, the most difficult thing to do is kill it. But the company's priorities, or the market, or the competitive motivation for the project may render it nonessential. Also, the art of the possible technologically continues to shift."
Copyright 2003. Cathleen Benko and F. Warren McFarlan.
All rights reserved.
Adding Flexibility and Dealing with Uncertainty
Project roadmaps and large infrastructure projects need to be designed so that they can be revisited if strategic direction is adjusted. This is particularly important when a firm's external environment is changing rapidly or is in a state of flux.
"In times of uncertainty, you are better off adapting to the future rather than predicting it," Benko says. She recommends making project portfolios options-based, rather than placing huge multimillion dollar bets. "This is called 'project chunking,' and it isn't simply following the typical phasing approach, but rather entails selecting subsets of the desired final result to match up investment with return in smaller increments. The idea is to reduce risk, create organizational value sooner, and add more decision points, while minimizing the dilemma of killing individual projects midstream after sinking significant time and money into them."
Project chunking reduces both payback time and risk, while adding flexibility.
"With large ERP implementations, the cost of keeping parallel systems and running multiple platforms can sometimes outweigh the benefits of this approach," says Benko. "Even in this case, though, you don't have to do HR, payroll, manufacturing, and procurement all at once. You can reduce the size of your bets and create more options."
She also points out that organizations should develop reusable components along the way, as opposed to undertaking redundant parallel development. "I have seen cases where multiple project teams were designing and building their own security modules at the same time, for example. This may seem to make sense within each project within a program, but when you put it together, it just doesn't make sense."
Aligning Projects while Avoiding Internal Bias
The difficulty in measuring ROI on various technology investments, combined with the greater choice presented by open architecture, creates challenges in portfolio planning.
"Organizations often do not do an adequate job of revisiting the business case post-implementation to measure results against expectations," Benko says. "Even for those companies that do, it is difficult to directly tie the return to the specific investment - since there are so many other variables in play, measurement may not be possible." One of the ways to ensure projects are aligned with the company's strategy is to do what Benko refers to as a "sides analysis." Benko classifies projects as:
- Inside, such as HR, ERP functionality, and finance-related
- Sell side, which includes customer-facing needs, such as CRM
- Buy side, including procurement and supply chain - related activities
"In most organizations, the majority of approved projects are typically inside-related, meet inside requirements, and are the result of internal organizational structure," she says. "But the strategies of most organizations are typically much more focused on what needs to happen outside - selling more, product innovation, changing operational capability, and so on. By classifying projects according to their intent, you can determine which projects are being forwarded solely because of inside requirements, which projects are most strategic, and how various proposed projects complement, overlap, and compare to one another. This also does so in a way that takes the inherent internal bias off the table."
The Impact of Emerging Alternative IT Models
Best of breed has taken on new meaning as a result of the changes occurring in the IT world. Benko believes that a whole new set of decisions now need to be considered as a result of emerging alternative IT models, such as outsourcing, subscription-based Web services, and on-demand incremental capacity. These often require both a flexible and interoperable mindset.
"When it comes to IT infrastructure, open equals choice," she says. "Once you determine whether new IT options can have a meaningful impact on your business, you need to have the ability to pursue them. Very few organizations have the opportunity to start from zero, so the ability to move forward from wherever you are on the chessboard is critical. This is why I am such a strong proponent of open platforms."
SAP NetWeaver affords SAP customers this type of flexibility.
Don't Underestimate the Problem
How important is the issue of alignment? Benko points to studies revealing that more than 80 percent of IT projects are conceived of and funded in a fragmented manner, with little in the way of overall planning. She further points out that for large organizations, "e-business is the business," so a misaligned project portfolio is an indicator of the potential inefficient use of resources on infrastructure that does not support the firm's strategy. This can lead to dissatisfaction with the results of IT efforts, regardless of how well projects are executed.
A large part of the solution is to move away from the "big bang" approach and contain individual project scope, review projects for overlaps in both effort and objectives, create opportunities to develop common tools and use new tools when appropriate, and remain flexible enough to make mid-course corrections when misalignment occurs.
Dave Rochlin is a technology strategy consultant, freelance writer, and professor of e-business in The Graduate Business Program at St. Mary's College of California. His book Hunter or Hunted: Technology, Innovation, and Competitive Strategy (Thomson South-Western, available July 2005) will be published later this year. He can be found online at www.emacula.com.