The definition of strategy is a long-term plan of action used to reach a specific goal or a set of objectives. To get the most out of their resources, companies should link strategy and new product resource allocation.
In addition, depending on their strategies, companies need to decide whether to focus on specific markets, technologies, and products. In the same way, once the strategy has been set, the majority of projects and spending should be focused on those markets, products, and technologies.
Strategy and portfolio
When companies want to align strategy with a project portfolio, they need to consider two aspects. The first thing to take into consideration is that all projects should be consistent with their business strategy. The second element is that the breakdown of their spending should reflect their strategic priorities.
There are mainly two methods to reach the goal of strategic alignment:
- Bottom-up: by including numerous strategic criteria into the prioritization tools and Go/Kill decisions;
- Top-down: by creating strategic buckets to set aside funds that will be used for different types of projects.
Scoring models can be used to align project portfolios with business strategy. In fact, the strategic fit can be one of the numerous objectives considered in a scoring model, along with profitability or probability of success. It can be done by simply adding to the scoring model a number of strategic questions.
Adding several strategic factors in the scoring model will allow projects which fit the business strategy to rise to the top of the list. At the same time, by following this method, the projects that do not fit the strategy will rank lower in the list.
The top-down approach is probably the only method that can ensure that the portfolio of projects truly reflects the defined business strategy. The strategic buckets approach allows companies to implement their strategies by spending money on specific projects.
Executives first develop the vision and strategy for the business; then, they make choices about how they wish to allocate their limited monetary resources. By doing so, existing projects are categorized into buckets that are developed by using strategic dimensions.
Listed below are the most common dimensions:
- Project type: the amount of resources that should be assigned to different types of projects (e.g., new product developments, maintenance, process improvements, etc.);
- Product lines: the amount of resources that should be split across product lines;
- Strategic goals: the amount of resources that should be split across the specified strategic goals (e.g., defending the core market or expanding the market, etc.).
Afterward, executives determine whether actual spending is consistent with the desired spending for each bucket. Companies can use either a scoring model or financial criteria to rank projects within each bucket. This way, the portfolio adjustments are made, either by removing projects or by adjusting the approval process for future projects.
Francesco Pecoraro, PMP, PSM, PSPO, SSYB, SSGB, SSBB, CL, CC is the founder of francescopecoraro.com where he shares useful and practical information about project management, program management, project portfolio management, and agile methodology. Francesco has extensive experience as a project, program and portfolio manager, project management officer (PMO), digital transformation and strategic consultant. He is also considered a communication, public speaking, and leadership expert. Francesco writes about project methodologies, program, and portfolio management.