Managing Director & Senior Partner
For many businesses today, generally only two things are certain: greater uncertainty and an accelerated pace of change. Globalization increases the scope of competition. Digitization hastens the pace of business. Customers are more empowered than ever before. A two-speed economy—rapid growth in emerging markets, slowing growth in developed markets—means that companies must execute in an increasingly complex world. In this environment, the ability to develop and implement new strategic initiatives and change gears rapidly is becoming a key differentiator.
Virtually all senior executives know this, and they devote significant attention and focus to defining and developing major strategic initiatives. Still, many companies struggle to successfully implement those initiatives. The difficulty is widely attributed to shortcomings in leadership, but, in reality, it is largely associated with ineffective engagement. Too many senior executives have trouble getting the information they need—when they need it—to make the frequently necessary adjustments and course corrections that in today’s business environment are critical for ensuring that large strategic initiatives will deliver their target impact.
A program or project management office (PMO) can play a crucial role in helping enable this by actively supporting the implementation of key strategic programs. However, the role of the PMO within the company must, in turn, become more strategic, and it must develop its capabilities accordingly. (Organizations use a range of terminology to describe their PMOs; in this article, PMO refers to an enterprise-level unit that works on a portfolio of strategic initiatives across the organization.)
Research by the Project Management Institute (PMI), the Economist Intelligence Unit (EIU), and Forrester Consulting over the past year has identified several critical issues for successfully delivering bold change that materially impacts the role that the PMO can play. Building on that research, The Boston Consulting Group has identified the following four imperatives for improving the odds of successfully delivering strategic initiative implementation efforts—imperatives in which the PMO can serve a critical support function.
Together, these four imperatives provide C-suite executives and the extended leadership team with the confidence and forward-looking course-corrective ability necessary for the organization to execute effectively and develop the skills and confidence to take on even more ambitious change. The companies that can develop these capabilities and advance their PMOs to a more strategic orientation will significantly improve their ability to implement strategic initiatives, potentially establishing a basis for real competitive advantage.
The Project Management Institute (PMI) has issued a series of research articles and other publications aimed at elevating discussion of the role of program or project management offices (PMOs) in enabling successful implementation of strategic initiatives. In the aggregate, PMI’s Thought Leadership Series has identified several program- and project-management concerns that confront many companies and has described ways that PMOs can help address these concerns.
This report is the capstone in that PMI series; it builds on the research and leverages The Boston Consulting Group’s and PMI’s experiences in this field to identify critical capabilities that differentiate best-in-class strategically aligned PMOs, as well as lessons applicable to all PMOs. (In this report, PMO refers to an enterprise-level entity that supports a portfolio of strategic initiatives across the organization rather than a project-based business-unit PMO.)
The consistent message coming out of this thought-leadership series is that PMOs must enhance their capabilities and processes if they are to effectively support senior business leaders and serve as real enablers of strategic change in an organization. Just one-third of PMO leaders feel that their PMO has realized its full potential for contributing business value to the organization. In the past, many PMOs have, by necessity, adopted a tactical approach—still the most common model at many organizations—that was well suited to their primary objective of supporting the delivery of departmental projects and programs.2 However, this approach is no longer sufficient.
Today, companies operate in a world of unprecedented change. And while change has always been a constant in business, the pace of change is dramatically faster than it was five or ten years ago. BCG research has found that the volatility of business operating margins has more than doubled since the 1980s. Moreover, turbulence—defined as volatility in demand, competition, margins, and capital market expectations—strikes more frequently today. More than half of the most turbulent fiscal quarters of the past 30 years have occurred during the past decade. Across multiple industries, there is considerably more churn, as companies in the top three positions are being overtaken by stronger competitors. And market leadership is no longer a guarantee of financial success: the formerly strong correlation between market share and profitability has faded significantly in a number of sectors. This creates risks for companies that cannot keep up and opportunities for those that can.3
In this environment, if companies are to remain competitive, they must simultaneously optimize both how they run the business and how they change the business, the latter typically through the development and implementation of programs of new strategic initiatives. Of course, optimizing for real excellence in both running and changing the business is much easier said than done. The day-to-day challenges that business leaders face in hitting run-the-business targets, while managing a cornucopia of operational issues, are enormous. Furthermore, delivering on bold change-the-business initiatives is a real challenge to many. However, meeting this challenge is becoming a competitive necessity. Correctly positioned, supported, and equipped, the PMO can play an important role in helping an organization meet this challenge. Analysis of research by the EIU shows that there is a clear upside for companies that excel at implementing strategic efforts and driving change. (See Exhibit 1.)
Company leaders understand what’s at stake. According to research conducted among 587 C-suite and senior executives by the EIU for this series, 88 percent of respondents said that executing strategic initiatives successfully will be “essential” or “very important” in ensuring that their companies remain competitive over the next three years. The same study found that engagement by the executive team can make or break an implementation effort: respondents identified leadership buy-in and support as the number-one factor leading to the success of strategic initiatives.
Yet three-fifths of this group said that they often struggle to bridge the gap between formulating strategy and actually implementing it. Only half of the respondents said that strategy implementation overall receives sufficient attention from C-suite executives. And among initiatives launched over the past three years, respondents quoted a success rate of only 56 percent.4
How does this happen? Clearly, it’s not a systematic lack of awareness or resolve among senior leaders. Most executive teams are acutely aware of what’s at stake when they embark upon new strategic efforts. The efforts themselves are more complex than in the past: the low-hanging fruit has already been picked. And, not surprisingly, PMI has demonstrated that there are more dollars at risk for projects that are highly complex.5
Today’s initiatives, with increased risks and greater interdependencies, must be implemented more frequently—in many cases, with incomplete information. Failures are increasingly public: companies are subject to rigorous external and internal scrutiny of major strategy-implementation efforts and how they are proceeding. And the inability to deliver bold strategic initiatives is costing increasing numbers of senior leaders their jobs. All of this dictates a clear need for the highly effective involvement of senior executives in regular progress assessment and course corrections. And, in fact, this could point to the need for a formalized executive-level approach to strategy implementation management as an essential complement to strategy development.
The central issue comes down to the way that information regarding these strategic initiatives gets structured and communicated to the C-suite and the extended leadership team—not just the C-suite’s reports but also their reports in the business and functions— as well as how company leaders engage with that information. Executive teams are extremely busy, with myriad demands for their time and attention. They generally sit several layers away from where the initiatives are executed, and in many instances, they are highly concerned about whether people further down the organization chart can deliver on their mandate. All too often, senior leaders don’t hear about problems until it’s either too late or too expensive to fix them.
EIU research from 2011 shows that executives consider both of these factors—senior commitment and clear milestones and objectives—critical for the successful delivery of strategic initiatives. And when they are compared with the EIU’s 2008 baseline data, it’s clear that these two factors are growing in importance. (See Exhibit 2.)
Despite the importance of these factors, the interactions between senior leaders and PMOs are often not sufficient for companies to meet the challenge. Forrester Consulting data show that PMOs that have bridged this gap are able to add real value in supporting the delivery of strategic initiatives. Furthermore, PMOs that succeed in helping underpin business growth report to a range of senior executives—from senior vice presidents to the C-suite level—and the majority have a highly visible champion in the senior executive suite.6
Yet this is a new role for many PMOs, and it involves an expanded mandate for facilitating strategic change. Although PMO leaders have made notable strides over the past decade, there is clearly more work to do—and more for organizations to do if they are to capture the real value-added opportunities from their PMOs.
Where to start? BCG’s experience and PMI’s extensive research indicate that companies that succeed in implementing strategic efforts focus on several capabilities, behaviors, and processes that are needed to facilitate senior engagement and improve the implementation of strategic initiatives.
Specifically, the following four imperatives stand out:
Whether strategic or tactical, these imperatives collectively make up the means for capturing and structuring the right information associated with strategic initiatives and communicating it in the right way, enhancing engagement with senior leaders and potetially improving implementation success overall.
The first imperative entails a process by which PMOs support the business in identifying clear, actionable insights into how implementation efforts will proceed. All PMOs encourage the creation of milestones, activities, and objectives for initiatives, but in many cases, the traditional approaches simply aren’t effective for large, complex, and fast-moving initiatives. They generate either too little or too much information, obscuring what is really happening instead of providing PMOs and senior leaders with clear intelligence that allows for timely course correction. The alignment of what is being tracked and communicated with what is critical for success is key to driving implementation. PMI’s research on PMOs shows that aligning projects with strategic objectives has the greatest potential for adding value to the organization.7
PMOs need an enhanced process for helping the organization align, define, track, and communicate meaningful milestones and objectives, specifically in the context of developing roadmaps for strategic initiatives. Roadmaps must identify the set of critical milestones that provide senior leadership with a basis for operational insight into what the initiative is about, what the critical known risks and interdependencies are, and how the initiative is progressing, through forward-looking lead indicators.
How do these roadmaps do this? They focus solely on a small number of critical milestones (in BCG’s experience, there are typically 10 to 25 per roadmap), along with explicit time frames, financial and operational metrics that are linked with overall objectives, and clear accountabilities. The milestones set a cadence for the entire change program, breaking it into more manageable pieces that, for everyone involved, become much more attainable. This requires establishing clear metrics and KPIs that must be as quantifiable and specific as possible.
In assisting with the development of the roadmap, PMOs support the business in helping identify and describe critical risks, assumptions, and interdependencies that are linked to specific economic or operational objectives and connecting them to milestones with explicit trigger dates and metrics for their testing and assessment. The ability to provide regular updates from roadmap owners allows for a means by which senior executives can readily understand progress and any emerging problems. This not only ensures that the initiative is built around the right actions and measures—that is, that the organization is doing the right things—but also that it can support senior executives in being effective in their leadership roles during the implementation effort.
As Forrester Consulting found, this kind of focus is critical. Successful PMOs define metrics that are directly linked to strategic objectives and use them consistently throughout the organization. In this way, PMOs can develop a handful of key measures that give a complete picture of initiative status, and they can compare performance over time, bringing “new levels of transparency to their executive management.”8
To ensure that roadmaps are sufficiently detailed and robust, many high-performing PMOs apply some form of a “rigor test” before an initiative can be launched. A rigor test should be designed to determine whether the roadmap underpinning an initiative is sufficiently clear and whether it provides links to overall impact.
Furthermore, the test should identify whether the set of milestones and objectives in the roadmap provides a robust basis for testing for known risks and interdependencies. (See Exhibit 3.) It also facilitates consistency of quality across projects and programs within a portfolio. A rigor test discussion ensures that the roadmap contains the necessary and right information for senior leaders to be able to make course corrections when needed.
Rigor tests should be used by the PMO acting as a “steward of value” for the C-suite. There is a sizable body of evidence showing the financial benefits of this approach. In an analysis by BCG, initiatives tested using this approach that earned merely a “pass” score still managed to capture 100 percent of targeted economic value, on average, whereas those that received an “excellent” score captured 130 percent on average.9
Implemented correctly, this rigorous approach to establishing milestones and objectives helps establish a virtuous cycle. Information delivered at the right level of operational detail—and in nontechnical jargon—leads to greater understanding among senior executives. Understanding, in turn, leads to greater support and more effective course corrections that mitigate problems, leading to improved interim results and greater buy-in by all participants and, thus, enabling greater execution success overall. The next imperative outlines how this works in practice.
When the right metrics and milestones are in place, it’s time to establish a manageable routine to record and gauge progress in a meaningful way as the initiatives get rolled out. The risk that the company may be collecting and monitoring too much information is all too real and can put an undue burden on the staff executing the initiatives. For example, once large strategic initiatives are underway there is a tendency in some organizations to capture as much data as possible about the project. Given the uncertainty inherent in major change efforts, this tendency is understandable. It can be reassuring simply to log everything—reducing the odds that the organization will miss some critical metric.
However, beyond a certain point, the sheer amount of information—and the processes required to record it, as well as the requisite follow-up and clarification—becomes a new problem. At its worst, this exacerbates the damagingly negative preconception of PMO staff as “box-checkers,” more focused on processes than progress. The evidence proving the ineffectiveness of such an approach is clear. High-performing PMOs are far less likely to be primarily focused on policing and setting up policy than on supporting the actual implementation of the project or program. Low-performing PMOs are more likely to mandate strict adoption and use of specific methodologies, templates, and forms—even in cases not well suited for the particular circumstances of the strategic initiative.10
Instead, PMOs must tailor their approaches to the needs of the organization. Strategically aligned PMOs eliminate onerous routines, unnecessary meetings, and excessively long reports. Rather, they apply the level of orchestration that is required to both support the business in strategy execution and help ensure progress and spot emerging problems without creating new bureaucracy or weakening ownership of the initiatives.
With the initiative roadmaps having been rigor-tested, the PMO well positioned, its role clearly understood, and the right processes established for gauging progress against upcoming milestones and objectives, strategically aligned PMOs provide the means for the business managers tasked with delivery to provide senior executives the information they need—and only that information—with enough time to make course corrections and ensure that the initiative gets delivered in terms of both impact and timing. As PMI’s research shows, high-performing PMOs tailor communications to different stakeholder groups.11 This means limiting the information communicated to executives to an overall status of the program (that is, current achievement against targets) and any emerging issues that require executives to intervene with the range of tools at their disposal—for example, removing roadblocks, fast-tracking decisions, prioritizing projects, and reallocating resources.
Another critical aspect of tracking progress is the importance of providing a current portfolio view for senior leaders. For example, Exhibit 4 shows BCG’s analysis of approximately 2,000 initiative roadmaps, with US$4 billion in impact-bearing milestones. Of course, not every individual roadmap for every initiative can be expected to be fully delivered. Analysis at the individual roadmap level shows that 35 percent of impact-bearing milestones exceeded plan, 45 percent were within plan, and 20 percent fell short. Overall, this portfolio of initiatives was successfully delivered, achieving more than 110 percent of the targeted economic value. A portfolio view—with a PMO actively supporting senior-leadership discussion—ensures that organizations adopt an enterprise-wide perspective. This generates the necessary forward-looking clarity on how the overall program is proceeding against planned impacts, spotlighting areas that require additional attention and enabling organizations to overdeliver against targets despite inevitable and initially unforeseen implementation shortfalls in individual roadmaps.
A crucial element here is “minimum sufficiency”—the right level of systems controls, information-based assessment of progress, and support by the PMO. And nothing more. For example, exception-based reporting on a monthly basis is a far more efficient way to monitor progress and engage with senior leaders than weekly meetings held to talk through results that are in line with expectations. The idea of minimum sufficiency pervades the behaviors and processes found in successful strategy-execution programs; it eliminates excess interaction, organization, data collection, and communication, boiling down potentially overwhelming amounts of information on an initiative to only the most critical milestones, risks, interdependencies, and objectives. With that distilled information, senior leaders can best consider decisions and actions that will have the largest and quickest impacts. (See “One Bank’s Path to Minimum Sufficiency.”)
A leading bank recently underwent a major transformation to realign its businesses in the face of structural changes brought about by the global financial crisis. That program consisted of almost 1,000 separately managed but interdependent projects, which included changes in sales and service practices in the branches and call centers, as well as corresponding enhancements to the underlying technology and operational infrastructure. The senior executive in charge faced the daunting challenge of identifying emerging risks among all these projects and deciding whether interventions were needed to land the whole transformation successfully.
On the one hand, it was neither practical nor feasible for this senior executive to read the hundreds of individual reports that were being used in executing the projects. On the other hand, the organization was already stretched to the breaking point by trying to run the bank while changing it. So the responsible PMO needed to be aware of the possible impact of introducing a new reporting requirement on top of what existed. In the end, the PMO helped create a practical minimum-sufficiency solution: a rigor-tested roadmap with approximately 15 milestones, KPIs, and objectives for each project that had to be monitored at the executive level; monthly reporting; a focus on changes and exceptions only; and action-oriented PMO-facilitated meetings focused only on those issues that required the senior executive’s decision or intervention.
There is a clear sequence to this process. On a forward-looking basis, the business provides regular updates (typically biweekly or monthly) on progress. The rigor-tested roadmaps give the executive team (supported by the PMO) the option to readily engage on any of the milestones or any objectives that are at risk. And because these concerns are raised early enough, the leadership team usually has time to make corrections before problems cascade and compound.
Adopting a more strategic orientation means that PMOs will need to occupy a new role in the implementation of strategic efforts, which, in turn, requires enhanced capabilities. PMOs must have the right people in place to actually serve as stewards of value in support of strategic initiatives. It is no longer enough to focus talent development only on technical project-management skills. Organizations also need to develop a portfolio of talented PMO staff with strategic and business management and leadership skills. (See Exhibit 5.) PMI’s Talent Triangle illustrates the three critical skill sets necessary to drive successful implementation of strategic initiatives.12
Through these four clearly linked imperatives, PMOs can play a powerful role in helping facilitate the successful implementation of strategic initiatives over time. The essential objective of the strategically aligned PMO is to actively support and partner with senior leaders to ensure that major strategic initiatives deliver full value while minimally distracting or disrupting the ongoing business. To that end, the PMO supports the business by prioritizing issues, identifying problems as they emerge, helping identify and potentially support complex interdependencies, and helping provide a highly effective means for communicating the right information—including progress toward targets—at the right time. Most critically, in helping secure engagement with and commitment from senior leaders, the PMO ensures that they get the information they need: the leaders know what’s going on and are positioned to make decisions on the basis of real operational insight, ensuring the successful delivery of strategic initiatives. (See Exhibit 6.) Of course, the PMO does not actually execute the change; that responsibility resides with the businesses and functions. Instead, the PMO plays an enabling role, serving to provide enhanced interactions with the leadership team.
When designed and supported effectively, strategic PMOs can constitute a true competitive differentiator in delivering bold change. Forrester reported that “by investing in a strategically aligned PMO, every company saw distinct benefits; two-thirds of the companies interviewed saw improved performance in less than six months and realized the value of investing in the PMO within two years.”19 Moreover, strategically aligned PMOs can help build critical capabilities, not only within the PMO itself but also through their engagement with senior leaders and more broadly within their organization.
To better support the implementation of strategic initiatives and improve strategic alignment, PMOs need to evolve along the four imperatives.
In a business environment characterized by persistent disruptions and escalating complexity, strategic change happens with increasing frequency, and companies must become more agile if they are to remain competitive. This requires that PMOs take on a more strategic role than they have in the past, developing the capabilities, processes, and tools and helping foster the behaviors needed to successfully implement strategic initiatives. High-performing PMOs help enable the right level of engagement with senior leaders—which is critical for strategic implementation—through meaningful milestones and objectives, smart and simple routines that track progress without adding new burdens, the right talent, and an organization that supports change. Together, these form an interlocked set of capabilities that reinforce each other, leading to stronger performance. Building up these capabilities is not easy, but doing so is crucial.