What is keeping corporate executives up at night? Is the CxO laying awake wondering if her company is good at project management or software development? Probably not. AMA says that the top issue facing executives is executing their strategy.

“The practice representing the largest difference between higher and lower performers is demonstrating the ability to quickly and effectively execute when new strategic opportunities arise.”
~ AMA, The Keys to Strategy Execution, 2007

So what are the keys to executing strategy? Recent research from PMI shows that when we align projects with the business strategy and clearly communicate the strategy to the team, then projects are delivered at a much higher rate.

“The single most important factor influencing project success is the project’s link to the organization’s business strategy and the project manager’s understanding of how the project supports the business strategy.” 
~ CIO Magazine-November 2009: Business Strategy: The "Best Determinant" of Project Success

So it sounds easy, we need to focus on executing the projects that advance our business strategy. And we need to communicate this strategy across the organization and the project team. How well do the ways that we select projects and communicate their strategic significance accomplish this?

How Do We Select Projects?

So how do most organizations decide where to invest? Projects are selected for the portfolio based on local ROI’s calculated by business managers, or by spreading investment across the organization based on head count like peanut butter, or by charging IT organizations to run IT like a business with departmental reimbursement. Are these the best ways to handle this? Probably not. None of these connect the projects to strategy – and none of these make the connection between strategy and the project explicit.

ROI’s are almost impossible to estimate. Local ROI’s don’t equal organization level benefit. For example, one organization spent $10 million implementing an automated solution to allow them to scale for seasonal demand. The $10 million was justified through service improvement and reduced labor in the department but it shifted significant costs from departmental budget to the IT department for customizations, maintenance, and ongoing licensing. In addition, ROI’s don’t provide an effective way to communicate the underlying assumptions about how the project supports the business strategy.

Spreading investment based on head-count assumes that all improvements are equal or that we can do enough in each area to raise the whole ship. The is no way we can make all the improvements in the organization, there is a limited amount of capacity for change and there is a limited amount of resource to invest. It is extremely unlikely that all problems will result in the same benefit to the business. In fact, this approach, while extremely common, ends up being destructive. It spreads limited resources too thin, it creates excessive demand for the enabling functions (IT, training, project management, support). And it obfuscates business strategy.

Running IT like a business sounds great, but it is another case of local optimization. IT is an enabler of business value. Some of the investments the business needs to make will have short term costs but they will return long term value for the business. When IT is run from the view of short term profitability you will often miss out on the most important investments. In this case, IT’s strategy – making profit from its resources from the business – it not aligned with the business strategy itself.

Based on numerous studies, the leading obstacles to project success are related to scope creep and shifting requirements, inadequate and/or disappearing resources, and a lack of effective executive sponsorship. All of these are related to organization’s trying to execute strategy without a clear alignment between strategy and the projects in the portfolio. Local ROI’s, equal distribution of investment, and local optimization of IT don’t solve these problems. They don’t clearly connect project efforts to the business strategy. And they aren’t resilient to the real changes in the market that businesses have to be able to adapt to.

So What Do We Do?

We need a way to reflect the business model and the where the strategy impacts the business model. We need to be able to clearly articulate what changes need to take place to deliver on the business strategy. And we need to be able to adjust this model rapidly and communicate the real shift in strategy to everyone in the organization easily.

We use capability mapping to achieve this. A capability map, as discussed in an article I co-authored June 2008 Harvard Business Review "The Next Revolution in Productivity" http://hbr.org/2008/06/the-next-revolution-in-productivity/ar/1 addresses these challenges. It clearly articulates the business model in a stable way, let’s you directly connect the business strategy to the business model, and let’s you connect project efforts to the capability map. This provides traceability from project to business model to strategy in a powerful visual management tool.

Five Steps to a Powerful Capability Map

1. Articulate the Near Term Business Strategy.

We frequently use a model we have developed based on Patrick Lencioni’s “Silos, Politics, and Turf Wars” called a Thematic Goal Model. It is straight forward, powerful, and communicates clearly. We can provide input to this from a SWOT analysis, a balanced score card, or multiple empirical methods like QFD to determine strategic themes. The outcome is a clear statement of a limited set of the near term strategic themes. The next set of “big rocks” that need to move to advance the business strategy. The important thing here is to make it visible and to get buy-in from the organization.

2. Decompose the Business into its Constituent Capabilities.

Decompose the business into the activities or functions of the organization. The activities are performed for a purpose, to achieve some outcome or transformation the business needs to accomplish.  Then, interpret activities as capabilities. Capabilities are independent of how they are done, who does them, and the organizational structure. They are named in a “Verb-Noun” form and express the underlying business purpose. A common mistake is to treat a process, or a “how”, as a capability. For example, “Produce Invoice” is not a capability. The business purpose is not to produce an invoice. The purpose of producing an invoice is to “record a customer charge”  and to “request payment from the customer”.  You can decompose the capability map to whatever level is interesting for your particular situation. We will do a limited drill down to start and then build out a more detailed view as the business strategy dictates. This can keep you from getting stuck in an analysis paralysis. Develop the map collaboratively, you will want buy-in from the organization when it is time to make the tough calls about what to invest in.

3. Evaluate the Capability Map in the context of the Business Strategy.

For each capability you can ask a few questions determine the strategic significance. Is this capability directly related to the business strategy? Would a significant change in this capability directly help the business execute its strategy? This can be an interesting exercise because different people will have different perspectives on what is important. Be rigorous in the assessment. Everything in a business is connected at some level. You are looking for direct relationships between capabilities and strategy. When you get down to determining how to address any interesting capabilities you will get a chance to explore the other related capabilities. Keep bringing the focus back to the strategic connection – not to individual functions. Rank the capabilities on a scale of 1-5 with 1 being directly and 5 being not at all. The capabilities that end up being a 1 or a 2 are strategically interesting.

4. Determine Performance Gaps at the Strategically Interesting Capabilities.

Now, look at the strategically interesting capabilities. Determine the performance gaps you would need to close to achieve the business strategy. You are not looking to identify every potential improvement at the capability – you want to be specific about what improvement is needed at which capability to achieve the specific business strategy. Again, you have to be rigorous. The goal is to identify the smallest subset of changes needed to achieve the business strategy. Remember, this is a focusing effort.

5. Determine a Road Map to Achieve the Strategy.

Now, you have a very clear set of improvements to focus your improvement efforts on. Drive your portfolio decisions from here. Articulate these as a specific performance improvement, at a specific capability, to achieve a specific strategic outcome.  Initially, all of this is done at a relatively high level. Once you have your specific initiatives you can do more detailed discovery about the best way to accomplish the objectives. Lay these initiatives out across all the enabling functions. You want to balance the efforts against capacity to optimize time to strategic value.

Summary

Now we have a way to reflect the business model where the strategic impact is explicit. We can clearly articulate what specific changes need to take place to deliver on the business strategy. This model can keep us focused when we start to get pressure from multiple directions. But we can also adjust this model rapidly and communicate the real shift in strategy to everyone in the organization easily. Better than ROI approaches, better than a bottom up local optimization model, better than running IT as a business, we can focus our efforts on executing the projects that advance our business strategy. We can synchronize efforts across the various enabling functions to optimize time to strategy. And we can communicate this strategy across the organization and the project team. Each activity on every project can be clearly linked to strategy.