Strategy-to-Project - Strategic Portfolio Management in The Digital Era

#ppmconf16
Strategy-to-Project
Strategic Portfolio Management
in The Digital Era
Markku Rehberger
Head of PM, Group Tech. Services, Lemminkainen Oyj
June 1st 2016, PPM Excellence Summit, Berlin

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Agenda
• How can we identify, scope and manage the ’justifiably right projects’…
in the Digital Era
• Why don’t we
• How to communicate this with the least amount of terminology, acronyms,
and complex diagrams

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Scope
• This presentation is about
– Strategy-to-Project: A design process to deliver the optimal project portfolio supporting
company competitiveness, exploiting information technology
– Project Management: A framework making benefits realisation a concrete management
objective, as opposed to relying on wishful thinking and high hopes
– Concepts, ’tools of thinking’, and how they relate to each other, forming a seamless,
transparent, and traceable path thru the process
– Competencies needed to execute the process
• Out-of-Scope
– Organisation structures enabling the process

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Why This Presentation
• As individual spectators, we are witnessing new achievements in
technology, at an accelerating pace
• Increasingly we are seeing companies rising and falling as a direct
consequence of (someone) applying technology in business
• However, as organisations, we are struggling to make sense of all of this; is
our industry and business immune to the much touted ’changing world’, or
are we bound to become victims of change
Winner Takes All

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Innovations and Market Disruptions
• Market disruptions may be caused by, for example
– Legal/regulatory changes etc.
– Product innovations
• Examples:
– IBM PC (1980’s) vs mechanical typewriter
– Smartphone vs first generation mobile phone (case Nokia)
– Supply Chain innovations
• Examples:
– T-Ford and mass production
– Online retailing; same products as in traditional brick-and-mortar stores, but
in a new setting (e.g. Amazon)

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It Happens to The Best of Us
• On year 2007, Nokia Mobile Phones had an almost 50% share of the global market
– Selling almost 500 million phones annually
• Nokia’s supremacy was not about superior or unique products, but about a superior supply chain, hence ’supply chain
innovation’ (Nokia was investing heavily into IT supporting supply chain)
– Well coordinated design, manufacturing, partner management, logistics etc. resulted in
• Competitive time-to-market of new models
• In a given price category, better-than-competition
– Functionality
– Quality
• Capability to pour huge amounts of affordable, high quality phones around the globe
• On year 2007, Apple introduced iPhone
• iPhone was a product innovation, a totally new concept, a handheld computer containing also traditional phone
functionality
• On year 2013 Microsoft acquired Nokia Mobile Phones, whose market share had dropped to 14%
• On year 2016 Microsoft writes off what is left of the operation; the final end of ’Nokia mobile phones’
R.I.P.
Winner Takes All

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Why IT Matters
• Information Technology (IT) has the potential to change products, businesses and industries, and create
overwhelming competitive advantages
• Apart from product innovations; the greatest leverage of IT lies in process standardisation and
automation thru the extended Supply/Value Chain, and thru the end-to-end processes in a single
organisation
• Automation supports resource optimisation , thus improving Supply Chain performance
• Superior Supply Chain performance is a major source for market disruptions; presenting significant
benefits to some and critical losses to others
• Market disruptions may cause a ’domino effect’; distant or seemingly unrelated changes in some market
may result in unexpected, often unwelcome impacts to unprepared companies
• Digitalisation is a major driver of globalisation: Market disruptions may have global effects
Winner Takes All

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How Successuful Are We With IT
• Several international studies across multiple industries, and over a time span of many
decades suggest that IT projects have a poor track record
• Example by IAG Consulting, 2009
– Over 100 companies studied, project budgets exceeding $250K, average $3M
– 68% of IT projects failed
– 50% of this group's projects had any two of:
• Taking over 180 percent of target time to deliver; or
• Consuming in excess of 160 percent of estimated budget; or
• Delivering under 70 percent of the target required functionality

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Dilemma and Conclusion
• Harnessing IT to product and supply chain innovations is crucial, but…
• …We tend to keep failing with IT
• We need a new approach
Note:
• This presentation contains no new methods as such; all methods are well proven legacy from various fields
• …The new approach suggested is a rearrangement of those old familiar tools and concepts!

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Part I: Strategy Process Reborn

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’Right Projects’ in The Digital Era
• …are those that implement a surviving strategy:
1. Create a market disruption
2. Prepare for an anticipated market disruption
3. React to an emerged market disruption
4. Strengthen competitive advantage in a stable competitive
environment
Winner Takes All

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Portfolio Management is Not The Answer
• Strategy Process is.

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Cyber Age Strategy Process
• An End-to-End Company Redesign Process – Strategy-to-Project
– Integrates high level strategic planning with Enterprise Architecture development
process, and a general process development framework
• Technology Aware
– Initiated with a comprehensive analysis of potential technology impacts to the
Extended Supply / Value Chain
• Continuous and Real Time 24/365
– Strategy updated as new information keeps emerging
• Seeking for Offensive Capability
– Oriented for change, first mover advantage, ’Blue Ocean’

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Gartner on Digital Maturity
10 March 2016
ID:G00302644

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Old School Strategy Process - Fail
• Traditional strategy work implicitly assumes and favors continuity
– Consequently; we see ’strategy periods’ of 3-5 years, an annual cycle is
considered ’advanced’
• Mission, vision, threats, opportunities etc.:
– Not sufficient conceptual tools to model cyber age situational
awareness and positioning
– It’s more about the typical people responsible for strategy work than
the process itself; missing competencies and perspective!

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Old School ’Business Development’ - Fail
• Often ’Business Development’ is looking for new business opportunities,
but relying on the existing capabilities of the company
• Typical ’Business Developers’ are not geared for radical change

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Old School Process Development - Fail
• Process and quality development frameworks identify radical vs incremental improvement
• …but typically lead ’Process Developers’ into incremental development, because
– Process development tends to view company ’inside out’
• Lack of conceptual tools to positioning the company in it’s competitive
environment and future scenarios
– ’Process Developers’ may not have understanding and awareness of IT; the potential of
radical process reengineering with IT support
– Company Executive Team may not want to hear about radical change, unless it’s their
own initiative

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Old School Portfolio Management - Fail
• Typical PM function is a reactive ’gate keeper’, performed by a ’PMO’, support staff responsible for keeping a register of
ongoing projects, and reporting status of portfolio
• Incoming ’project proposals’ are created randomly in siloes, without ’the big picture’
– PMO is facing a flood of totally unrelated proposals from all directions, in random order, ranging from minor
enhancements to major ERP Programs
• PMO has limited or no visibility to future project proposals coming down the line (when noone else has, either)
– PMO cannot evaluate a proposal against all other development possibilities
• Typical PMO tools for evaluating a proposal
• Business Case (fuzzy tool with company internal projects and indirect financial benefits)
• Checklists: ’Compliant with Strategy’ (very crude tool if strategy story is weak)
• Scoring system (yet another abstraction layer, no added value)
• These tools cannot compensate for the absence of coordinated planning upstream
• It is often impossible to reverse engineer a consistent, justified, and timely company wide development plan

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Old School Hierarchy of Development - Fail
Strategy Development
Business Development
Operations Development
Process Development (if any)
IT Project ideas born in
functional siloes, narrow
context, and late! ‘Must have
this system ready by yesterday’
IT Development
Thinking out of the box?

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Cyber Age Strategy Process Designs The Project Portfolio to
Deliver The Winning Company
Strategy development
Business development
Operations development
Process development
IT development
Requirements Design Implementation
Competencies

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Part II: Requirements

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Cyber Age Strategy Cookbook – Define Requirements
Extended Supply/Value Chain –
Scenario Analysis
Product x Customer Segmentation
Target
Business
Capability
Map
As-Is Business
Capability
Map
Capability
Heat Map
Development
Asset
Transformation
Milking
Strategy
Sell
Start new
operation
Other
investment
opportunities
PPM
Innovation Management
Gap too
large
Gap feasible
Investment
Projects
Divestment
Projects
Company Internal Value Chain ,
Fundamental Process Architecture
Specification
Funding
Investment
Market & Technology
Intelligence

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Initial Input for Strategy Process
• Permanent, 24/365 ongoing functions
– Intelligence Management
• Gather and analyse systematically intelligence
– Markets, competitors, offering/product innovations
– Technology
– Legal/regulatory environment
– Etc.
– Innovation Management
• Manage investments and effort into innovation
• Gather and analyse results, also random, ad hoc ideas from ’shop floor’
• Feed data into Strategy Process

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Extended Supply/Value Chain Scenario Analysis
• Create scenarios describing possible (paths to) new end state of the Extended Supply/Value
Chain
• Between counterparts along the chain, analyse
– Exchange, ’what’ (products, money, information etc.)
– Processes, ’how’
– How would technology change that relationship
• Analyse benefits and motives to do so
• Choose a (set of) scenario(-s) as an assumption of future
– As a basis for product x customer segmentation

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Take A Broad Perspective for Scenario Analysis
Customer
Customer
Supplier
Supplier
Value Chain /
Process
Architecture
Core Product / Service
Marketing / Communication
Forecast
Order
Contract
Delivery
Invoicing
Payment
Customer Service
Core Product / Service
Communication
Forecast
Order
Contract
Delivery
Invoicing
Payment
Vendor Management
Direct
Competitor(s)

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Lead Demand and Supply Signals Thru the Supply
Network and Internal Functions
Customer
Customer
Supplier
Supplier
SalesSourcing
Production Delivery
Demand
Order / Forecast
Supply
Delivery / Forecast
Demand
Order / Forecast
Supply
Delivery / Forecast

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Evaluate Process Standardisation and Automation Value Potential
Process Characteristics
Volume
Variety of Products
Variation in Demand
Visibility to Customer
Process Performance
Objectives
Quality
Speed
Dependability
Flexibility
Cost
Slack, Brandon-Jones, Johnston, Betts 2015
Improve with
technology?

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• A combination of
– Product characteristics
• What kind of products
– Customer characteristics
• What kind of Customers
• Find a space within the assumed future Extended Supply/Value Chain, where
• We add value and differentiate
• There is potential for a sufficient margin
– Considering the required capabilities to operate

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Segmentation – Go Deep
• What is the ultimate Customer need (that the product is supposed to satisfy)
• What are the primary product qualities in the target segment
– Functionality, quality (tolerances), cost
– Functionality/cost, quality/cost
– Variability
– Etc.
• What are the primary Customer characteristics in the target segment
– Who/where are they
– When and how much do they buy
– Which factors drive Customers’ decisions
– Which factors make buying easy for these Customers
– What does the Customer appreciate
– Etc.

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Product and Customer Target Segments and Their Characteristics
• Cornerstone and a critical deliverable of Strategy Process
• Together with the scenarios selected in previous phase, this serves as the
Requirements Specification for the target company
• When delivered in sufficient detail and quality, enables designing the
company to fit into the competitive environment

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Cyber Age Strategy Cookbook – Design to Requirements
Scenario Analysis
Target
Business
Capability
Map
As-Is Business
Capability
Map
Capability
Heat Map
Development
Asset
Transformation
Milking
Strategy
Sell
Start new
operation
Other
investment
opportunities
PPM
Gap too
large
Gap feasible
Investment
Projects
Divestment
Projects
Specification
Funding
Investment
Market & Technology
Intelligence

#ppmconf16
Value Chain, Process Architecture Example
Firm infrastructure
Human resource management
Technology development
Procurement
Inbound
logistics
Operations Outbound
logistics
Marketing
and Sales
Service
SupportservicesPrimaryActivities
Margin
Make-to-Stock
Make-to-Order
Engineer-to-
Order
Make

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Business Capabilities
• ’Business Capability’ is a fundamental concept in integrating strategic planning and execution with
technology management – via Enterprise Architecture Process
• Definition by Open Group:
– A Business Capability
• Is a particular ability or capacity that a business may possess or exchange to achieve a specific
purpose or outcome
• Consists of:
– Roles
– Processes
– Information
– Tools and Systems

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Business Capability Concept
Business
Outcome
Processes
SystemsRoles
Information
Input
Consuming
Capability
Producing
Capability

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Business Capability Map Example
Strategic Business Planning Marketing Partner Management
Capital Management Policy Management Government
Relations
Management
Core Account & Sales
Management
Product
Management
Distribution
Management
Customer
Management
Channel
Management
Agent Management
Supporting Financial
Management
HR Management Procurement
Management
IT Management Training Operations
Management

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Target Business Capability Map
• What capabilities (their outcomes) are needed
– In the targeted space defined by product x customer target segments
• What are the requirements to capabilities, deduced from target
segments’ characteristics
Multidimensional process performance
Technology (IT) support for processes

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And What Does This Have To Do With Anything
• Why did we design an ideal company, without any reference (yet) to our
existing operation?
• …Because, that’s what a new entrant, without any burden of legacy, would
do; we have to become at least as good as that
• In the world of disruptions, we have to be ready to abandon what we have
and start over
• …But we may not always have to; continue to the next phase and see…

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Part IV: Implementation

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Cyber Age Strategy Cookbook – Choose Strategic Context and
Proceed to Implementation
Scenario Analysis
Target
Business
Capability
Map
As-Is Business
Capability
Map
Capability
Heat Map
Development
Asset
Transformation
Milking
Strategy
Sell
Start new
operation
Other
investment
opportunities
PPM
Gap too
large
Gap feasible
Investment
Projects
Divestment
Projects
Specification
Funding
Investment
Market & Technology
Intelligence

#ppmconf16
Digital Transformation – Giant Leap
• Ambitious Business Transformation Programs often fail [old jungle saying]
• With the right people, a startup grows faster to global dominance, than a
big ship turns its direction
• If the gap between current and target business is too wide, transformation
requires owner’s active involvement (Asset Transformation)

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Portfolio Prioritisation Process - Summary
• Determine the strategic context
– Thru strategic analysis, create a view to the Target business operation
– Analysing the transformation challenge, determine the broad
approach:
• [1] Develop current operation incrementally to Target
• [2] Develop thru Asset Transformation to Target
• [3] Asset Transformation only, to achieve liquid assets

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Portfolio Prioritisation Process - Summary
• In category [1], the Capability Heat Map presents the ’right projects’
• In category [2], there are two portfolios in two separate entities
– Divestment portfolio in current operation (continue planning from as-is Capability Map)
– Investment portfolio in the other, create Target operation (as defined by Target
Capability Map)
• As ’startup’, or
• Buy another company (-ies) to be developed (define their as-is status and new
Business Capability Heat Map)
• Category [3] results in a divestment portfolio only
• Feed random, ad hoc ideas (thru Innovation Management) into the same stepwise process to
evaluate
– Relevance/impact to (baseline) strategic context (first)
– Relative value (only if idea fits the context)

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Cyber Age Portfolio Management – Summary
• CEO’s first priority; his Strategy Execution Tool
• Supported by a capable staff with a cross functional skill set (Business/Market Experts,
Enterprise Architects, Technologists, Process Developers , PM Experts)
• For most part, portfolio is a result of active planning with a global view, a design process
– Portfolio Management process starts early; at the very beginning of the strategy cycle
– Decisions largely based on transparent qualitative reasoning along the strategy process
– Quantitative methods (e.g. Business Cases) certainly used, but in a valid context;
scenario planning and weighing merits of alternative decisions
• Random impulses (ideas, external information) are evaluated thru the same, uniform
planning and design framework (thru Intelligence and Innovation Management)
– Starting from Extended Supply Chain Scenario Analysis

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Part V: Projects - The Hard Part

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How to Scope and Set Up a Project
• Business Capability Project
– Justified thru the uniform planning and design process
– Scheduled thru the program planning process
– Scoped and targeted to transform/create a capability to a new, balanced and stable
state in operation
– Performed as long as there is confidence in reaching the targeted operational end state
(and benefits thereof); Killed when not
• Compare alternative scoping:
– Desired operational end state achieved (Value) , or
– IT system built and deployed (Only Cost; with the implicit hope that the rest will follow)
No more ’IT Projects’!

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How to Manage a Business Capability Project
• Three level model
1. Development Investment Management
2. Engineering Management
• Logical linear path from design to deployment with robust
gates/checkpoints
3. Research & Development (R&D) Management
• Iterative development, problem solving

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Development Investment Management
• Maintain
– an agreement (expectations!), and
– a forecast (with confidence levels), about
– Outcome
• the end state; what exactly is to be delivered
– The new enhanced capability and it’s desired characteristics – in operation
– Money
– Time
• Lower levels provide information for maintaining this aggregate view

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Development Investment Management
Improved Capability in Operation
Money Time
What am I going to get for
my money, when, and with
what certainty?
I can deliver the operational
capability as designed, but I’m
going to be 3 months late, 4
months max, and exceed budget
by 30%, 40% max.

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Engineering Management
• Depending on situation and context
• Typical / possible path when developing a company internal capability and IT support:
– Capability Concept Design
• Initial (dry) design
• Proof of Concept
• Prototyping
• Limited pilot
– Capability Implementation (production grade)
• System implementation
• Organisational preparation; coaching, training, recruiting etc.
– Capability Deployment
• Organisational changes and system roll out
• Key: Precise Gate Acceptance Criteria, and strict adherence to it!
• Errors become exponentially more expensive to fix later in the process
Compare: US DoD Technology Acquisition Framework

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Engineering Management
Where are we going in
development?
We are still running the live pilot
and gathering user feedback. We
have made major improvements
to the capability design. I believe
we’ll be ready to accept concept
next month, and start
implementation
Design
Implementation
Deployment

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R&D Management
• In each phase/step targeting to Gate acceptance:
– Use whatever means possible and available to create the targeted
deliverables with required quality/characteristics
• R&D is all about controlled trial and error
• Fail and learn - fast and cheap
• Iterative development and instant feedback
• Process & IT development tends to require an iterative approach

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R&D Management
Have you figured out how
to speed up the customer
complaint process as
needed?
We are still experimenting with
different setups between our call
center, product line and repair
center, developing the prototype IT
system supporting communication.
It will take at least a month, before
we’re ready for the pilot.
Design
Dry design PoC Prototype Limited Pilot

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Project Management in Three Levels (Example Structure)
Initial design Proof of Concept
With System and
Organisation
Prototype
With System and
Organisation
Limited Pilot
With System and
Organisation
System
Implementation
Organisational
Preparations
Capability
Deployment
Organisational
Changes
System Roll Out
Capability Concept Design Capability
Implementation
GATE1 GATE2 GATE3
Investment
Proposal
Investment Implementation Investment Follow Up
GATE 1.1 GATE 1.2 GATE 1.3 GATE 1.4
New Capability
Operational
Maintenance
Support
Continuous
Improvement
Investment
Management
Engineering
Management
R&D
Management
Need defined by
Strategy Process
Spending time and money… For What?
Contract Fulfillment

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Part VI: The Critical Ingredient

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C-level Management Competence Requirements
• Understanding of the fundamentals:
– The central role of information flows in reengineering the Extended Supply/Value Chain
– The power and potential of process standardisation and automation
– Where the true leverage of IT comes into play
• Steering and optimising resources, in the extended Supply Network
• Value adding supplementary services to customers and partners
• Possibly even the core product (definitely a disruption)
• Cyber Awareness and Mindset:
– Appreciate (information) technology both as a threat and an opportunity
– Understand why in Cyber Age, attack conquers defense
• First Mover is the one that may ’win it all’
• Strategies are perishable goods
– Develop the company ’outside in’
Winner Takes All

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• ’Hard’ management skills
– to be able to recruit the right people, build and lead a competent organisation:
– Management of large scale product and operations development
– Change management
– Strategic analysis, process management
– Portfolio and program management
– Partner network management

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• People management; leadership
– Managing experts
– Listening skills
– Team building and team play skills
– Boldness; courage
– Ownership instead of ’hired help’

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Summary 1/2
• How can we identify the ’justifiably right projects’ in the Digital Era
– Maintain a broad view of the Extended Supply/Value Chain
– Analyse technology change impact within the first steps of strategy process
– Identify strategic context; what is the expected life cycle of the company
– Design the portfolio, evaluate random ideas thru the design process
– Combine different disciplines and competencies, make them work together
early in the process
• How should we scope a project
– Only new, improved capabilities in operation create actual benefits
– Include the whole Business Capability, in operation, into scope, not only ’IT
system’
Winner Takes All

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Summary 2/2
• How should we manage a project
– Choose appropriate concepts for different concerns
• Development Investment Management level is about forecasted
beneficial results vs time and money
• Engineering Management level is about a logical, linear path from design
to deployment
• R&D Management level is about controlled trial and error, iterative
development
• What does it take to succeed
– Cyber aware C-level management with appropriate hard and soft
management skills; the rest will follow
Winner Takes All

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Thank You!
Winner Takes All

Strategy-to-Project - Strategic Portfolio Management in The Digital Era

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