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- 1. Aum gam ganapataye namya. The Ever Flourishing Company’s View of PPM : Getting More to the Bottom Line Dhaval Shah, PMP Wipro Technologies Ashwani Kakkar
- 2. Contents 1.1 Abstract ................................................................................................................................... 3 1.2 Keywords ................................................................................................................................. 3 1.3 Concerns ................................................................................................................................. 3 1.4 Corporate Objective: Have Good Growth Magnitude with Same Resource Levels................. 4 1.4.1 Portfolio management in context of strategy .................................................................... 4 1.5 Strategies for Growth ............................................................................................................... 4 1.5.1 Callenges in implementing Portfolio Management ........................................................... 5 1.5.2 A few salient findings: ....................................................................................................... 5 1.6 Business Value ........................................................................................................................ 8 1.7 Value of Improving: IDC Research Results ............................................................................. 9 1.8 Analysis ................................................................................................................................. 10 1.8.1 Directions for Success ........................................................................................................ 11 1.9 References ............................................................................................................................ 12 1.10 Authors Profile ................................................................................................................... 14 2|Page
- 3. 1.1 Abstract Year 2009 - Global recession plus massive economic restructuring - While revenues for most of the companies were declined from 2008 to 2009, 40+% saw their revenue grow. Prognosis for Year 2010 - Optimistically marked for economic recovery 70+% companies anticipates growth (10% revenue growth organically) in 2010 relative to the growth experienced in 2008-2009. The negative impact of current economic recession has meant less revenue for most companies, forcing them to cut back on already limited resources. To survive, companies must look for ways to optimize effectiveness with less. By the same indication, developing more products faster can be the key to higher profits. Business that can commercialize most of the capacity with little or no investments will reap substantial rewards Strategies for Growth - Research has found that the High Growth companies are “Expending their Sales Channel” while slower growth companies are still focusing on “Reducing Cost” It has been reported that as many as nine out of ten corporate strategies devised on the execution level never comes to fruition. Initiatives get done in the context of projects – Are these projects efforts strategically focused? While most decisions on the project level are concerned with tactical issues, decision making on the portfolio level is concerned with strategic issues. Top-level corporate management is unable to easily hand off directions. That's because choosing projects that generates value is essentially a strategic activity 1.2 Keywords Portfolio & Investment Management, Portfolio Valuation, Priority Model, New Product Development NPD, Resource Commercialization, Theory of Constraints, Mafia Offer, Blue Ocean Strategy, Integrated Business Planning, Corporate Performance & Key Metrics and Statistical Benchmark 1.3 Concerns • Increase revenue, decrease cost - Sales must grow faster and keep growing faster than it’s cost to have the good growth magnitude • Exhausting companies resource and or taking too high risks endangers the chance of reaching the objective • Increased collaboration and develop strategic partnership with customer, supplier and employees 3|Page
- 4. 1.4 Corporate Objective: Have Good Growth Magnitude with Same Resource Levels 1.4.1 Portfolio management in context of strategy Companies can not afford to waste their resources on low value project that will have no financial return; portfolio management would help them optimally allocate the right resources for the right purpose at the right time resulting in increase of available financial means through improved investment selection (portfolio management of initiatives), reduction of overall costs and increase of profits and margins Since good portfolio management will impact ROI, let us understand what senior executives try to achieve A senior executive needs to focus on company’s performance which is predominantly judged by Return on Investments (ROI) (Profit/Investments). ROI can also be calculated as Investment Turnover * Operating margins% There are only two ways to have substantial increase to the profit margins Cost Reduction Sales increase Cost reduction as a strategy has a limit that is it can go only down towards zero; cost reduction has very limited potential and so the only way forward is to increase sales, and to convert sales increase to profit increase, sales must grow faster and keep growing faster than its cost Organization need to increase their capacity with little or no additional investments and sell the newly exposed capacity, by doing this, Sales - Direct variable cost drops directly to the bottom line. This leads to profit increase without depending on other traditional approaches (price increase, raw material decrease, or cost reduction) that proves to be difficult. 1.5 Strategies for Growth High Growth companies are “Expending their Sales Channel” while slower growth companies are still focusing on “Reducing Cost” Figure 1: Strategies for Growth 4|Page
- 5. 1.5.1 Callenges in implementing Portfolio Management Organizations face a variety of challenges in executing profitable business. These challenges are as diverse as the products and services offered, yet all strive for a common goal of delivering projects on-time and under-budget. Clearly, companies must learn how to make investments in commercializing new technology more (a) effective, by selecting the right projects (products or platforms that best carry the projects to the market), and (b) efficient, by distributing resources optimally across the projects in the portfolio. This approach will maximize shareholder value and eliminate low-value projects early in the development cycle. While companies with PPM implementation is more likely to grow profitably and efficiently, companies routinely over schedule their resources that leads to long lead time, fire-fighting and execute redundant projects and damage profitability by investing in non strategic efforts It is against this strategic backdrop Wipro conducted a study of some of some of their customers that implemented project and portfolio management (PPM) solutions in order to uncover the pain points leading to deployment as well as the benefits that PPM offers. Respondents were asked about what tools they have implemented, and details of their customer’s organization process and implementation goals. This study includes data from customers representing finance, electronics, banking, pharmaceuticals and manufacturing industries. Customer’s total revenue is in excess of USD 1 billion. Each participant was interviewed about their experience since deploying project and portfolio management tools (PPM) from CA, Planisware, HP PPM and Planview. This report leverages some findings of this ongoing September- October 2010 study that includes 10 customers 1.5.2 A few salient findings: The sample includes only organizations that are implementing a PPM solution. Around 60% indicate that they do not use scenario comparison for project selection Is scenario com parison used for project selection? 40% Yes No 60% Figure 2: Scenario comparison - Usage 5|Page
- 6. Of the customers who currently are not using scenario comparison 75% expects to adopt it in near future Of the custom ers that do not use scenario com parison, do they plan to use it in future? 25% Yes No 75% Figure 3: Scenario comparison - Future adoption Do custom er kill projects based on PPM data? 0% 20% Yes No 50% Yes but not in tool 30% Future Figure 4: Kill Bad Projects - Unclog the Pipeline 50% respondents do kill bad projects but the mechanism is not integrated in PPM i.e. the decision is not made by leveraging PPM solution in place. Often there are offline processes that are more relied upon. Wipro recommends that maturing organization assume that there would be additional low value projects in the portfolio that can be dropped. For this, organizations needs to use portfolio selection process effectively Most organizations have already made significant investments in PPM implementations but are yet to experience the full value. The Investment-to-value cycle is broken. They do not start with the end in mind. However they still manage to do right things initially but get derailed along the way. As many as 80% respondent do not calculate ROI of their PPM implementation 6|Page
- 7. Do custom ers calculate ROI of PPM? 10% 10% Yes No Future 80% Figure 5: PPM ROI - Value assessment post implementation Portfolio management processes are relatively new and the potential is not completely understood therefore full value is not realized. Most of the processes do exist, but outside PPM Which of these following processes exist at your customer? Stage & Gate Project pipelining Roadmapping Yes Portf olio simulation No Project Scoring and ranking Future Ensure Strategic Alignment Outside PPM Portf olio Valuation Identif y critical resource 0% 20% 40% 60% 80% 100% Figure 6: Portfolio Management Processes 7|Page
- 8. 1.6 Business Value • Organizations are implementing PPM tools to eliminate low value projects soon, commercialize new projects quickly and profitably while getting most out of development capacity • Streamlining project execution is viewed as primary objective of PPM and not portfolio management, this is despite having challenges in maximizing portfolio value, optimize resource utilizations and increase project velocity • Companies find that their greatest challenges are portfolio selection and pipeline planning Portfolio management is a solution that addresses many of concerns of the companies. In many cases companies are trying to bridge the gap between portfolio planning and project execution but portfolio management is still a missed opportunity for most of the companies. Companies are implementing portfolio management In w hich phase did the custom er im plem ent Portfolio Managem ent? 20% Phase1 40% Phase2 Phase3 30% Future 10% Figure 7: Portfolio management - Implementation Phase Today's companies that employ PPM tools understand that they bring much value and better managed innovation processes and enables companies worldwide to improve organizational efficiency and save millions of dollars year after year Forrester in May 2009 found that PPM tools bring a 250+% ROI (over a three-year period) to organizations – and PPM experts to create a three-pronged ROI evaluation based on cost reduction, cost avoidance and revenue increase that provides a guide for companies interested in or already using PPM systems 8|Page
- 9. Figure 8: Key Benefits of PPM Software PRTM Benchmark found that increasing maturity level on PACE model directly drives both revenue and margin growth Figure 9: Benefits of Increasing Maturity Levels -PACE Model 1.7 Value of Improving: IDC Research Results Summary results for the surveyed respondents yielded the following metrics: Number of projects managed increased 35% Cost per project was reduced 37% Redundant projects dropped 78% IT staff productivity increased by 14% Project failure rate dropped 59% The total annual benefit per 100 users is $83,500 9|Page
- 10. Payback occurred in 7.4 months Source "How Project and Portfolio Management Solutions Are Delivering Value to Organizations", IDC, September 2008 1.8 Analysis • There are various tools including portfolio management that can help organization achieve substantial capacity gains in operations. However, if we can’t sell any of this newly uncovered capacity we have had no bottom line • Kill existing bad projects and unclog the pipeline • Formalize value assessment process and periodically measure portfolio value & performance • The major change is “WIP Reduction” & “Release Control” Table 1: Lack of portfolio management practice can imply numerous performance issues while appropriate best practices would result multi-faceted benefits Inappropriate … and … Leads to portfolio results can problematic Best Practice Benefits management be decisions… practices… catastrophic No visibility of Resources Delays and Identify Increased resource spread on long cycle constraints effectiveness capacity too many time and efficient projects Resource & performance Budget over enable pipeline by insights Resources run and high over Project leverage allocated selection managerial Too many Numerous Ineffective Project decision (not projects in the held projects investments selection cultural pipeline change) Too many Ensure low value strategic Allocate initiative alignment resources to most profitable Delayed Resource & projects projects enable pipeline (Project Determine sequencing) trade-offs Lack of Decreasing Undelivered Strategic between roadmap project business roadmapping cycle-time, quality value constraint 10 | P a g e
- 11. Ensure capacity and Low quality strategic load (WIP) and alignment inadequate Set customer unwavering support priorities and Inability to align Lack of Reduced Project assure on time resource to resources number of selection completion appropriate on “good” successful projects projects projects Focus Selection/killing Inability to Held projects, Project improvements decision not properly slow selection on biggest based on value progress disruptions to objective opportunity Portfolio value the flow information Waste assessment « Political » A lot of lost Optimize opportunities Internal/exter Rank and capacity nal frustration prioritize Late project portfolio Accelerate cancellation project flow Kill bad projects Decisions soon Increase profit are often hardly understood by operations or clients 1 1.8.1 Directions for Success • Reduce WIP, reduce complexity & cut cycle time for accelerated project flow • Pursuing time efficiency • Develop platforms, ensure strategic alignment to execute goals To achieve exponential growth magnitude companies must build significant competitive edge and the ability to capitalize on it, on big enough market without exhausting the resources and without taking real risk “WIP reduction” and “Increasing constraints capacity” cuts cycle time. Thus understanding constraints their capacities and load forms the basis on valuable information for business. Shorter cycle time drives performance 11 | P a g e
- 12. Dump the projects and broad portfolios that weigh you down and do not provide value. In the past, many of those projects seemed worth supporting and broad portfolios may have seemed attractive. Now they just suck up resources and time both of which are precious. It is time to let some go Companies should focus their energy on developing platforms, each of which provides good foundation for developing many different products. The choice can be the basis of differentiation and the differentiation can be based on total cost, superior performance, or ability to scale. A platform strategy offers several important advantages. It can speed up the time needed to deploy innovation throughout product lines and to launch products to market while also helping to keep R&D spending down. In addition, platforms can reduce the number of required parts, leading to significant savings in cost of goods sold and other supply chain management expenses Institutionalize portfolio management process & establish ownership to ensure that common, objective criteria are being used to value, select, manage, kill and coordinate portfolio priority and resource capacity Companies overall portfolio has to clearly quantify the following metrics ROI, Profitability and margin, Cash flows and Risk profile. It prioritizes projects by removing subjectivity from decision making. Companies should select project if it has a positive NPV but at portfolio level it is not possible to accept projects solely on its merits. Lets us assume that there is finite capacity, which is true in all most all cases. Now the NPV rule has to be modified so that the combinations of project should have greatest combined NPV Balance project pipeline with resource capacity In an unconstrained environment its critical path dictates lead-time of a project. However in capacity-constrained cases, project schedules and lead times depend on when capacity is available at the drum resource (constraints). When projects are not staggered operations are bound to experience substantial queuing losses and resource conflicts. Obviously the goal is not to start working on more projects rather it is to complete more projects. Releasing projects in violation of bottlenecks’ capacity creates unnecessary WIP. So pipelines have to be cautiously loaded and projects correctly sequenced to maximize the flow Tie change to growth, not process improvement Decide where investments are needed to improve the three critical measures of pipeline effectiveness and what forms the investments should take. Evaluate the results in tandem with your key financial metrics 1.9 References 1. C Symons, "The ROI Of Project Portfolio Management Tools", Forrester, May 8, 2009 2. C. Jackson, "Product Portfolio Management Gets its Due", AberdeenGroup, April, 2008 3. C. Jutras et al, “The Economic Outlook for 2010: High Growth? Low Growth? No Growth?”, Analyst Insight, Aberdeen Group, December 2009 4. C. Jutras, "The Role of Enterprise Project Management in Productivity", AberdeenGroup, October, 2007 12 | P a g e
- 13. 5. E.L. Jarrett, "The role of risk in business decision-making, or how to stop worrying and love the bombs", Research Technology Management, Nov. 2000 6. G Pisano, "Managing the Product Development Cycle", Harvard Business School 7. G. L. Tritle et. al., “Resolving uncertainty in R&D portfolios”, Research Technology Management, November 2000 8. H. Andrews and J. Takach, "CASHING IN ON INNOVATION", PRTM, 2007 9. J. Brown et al, "Product Innovation Agenda 2010: Profiting from Innovation Today and Tomorrow", AberdeenGroup, 2007 10. J. Matheson and D. Matheson, "The Smart Organization", Harvard Business School Press, 1998 11. "J. Pennypacker, "WHY CORPORATE LEADERS SHOULD MAKE PROJECT PORTFOLIO MANAGEMENT A PRIORITY", Center for Business Practices, 2003 12. L. Mieritz et al, "Toolkit Best Practices: Program and Portfolio Management Maturity Model", Gartner, 13 July 2007 13. M. Boucher, "Managing the Innovation Portfolio Enabling Engineering Success to Boost Profits", AberdeenGroup, August, 2009 14. P. G. Smith and D. G. Reinertsen, "Developing Products in Half the Time", 1998 15. R. Perry and E Hatcher, "How Project and Portfolio Management Solutions Are Delivering Value to Organizations", IDC, September 2008 16. R. Truman and I. Smith, “Banking on Innovation", PRTM, 2008 17. S. Mahoney and R. Franco, "Good Medicine for Biopharmaceutical Companies", PRTM Insight, PRTM 2008 18. "CIOs: Avoid IT Marginalization On The Path To BT," Forrester Research, July 24, 2007 19. "Global Innovation Trends Study 2009", PRTM, 2009 20. "How to compete and grow: A sector guide to policy", McKinsey Global Institute, McKinsey&Company, Mar 2010 21. "Managing Technological Change: A Box of Cigars for Brad", Harvard Business Review 22. "NPD Flow: Getting the Most from Product Development Capacity", Realization Technologies Inc, 2004 23. “Financial Theory and Corporate Policy”, 3rd edition, by Copeland and Weston 24. Roussel, "Third Generation R&D", Arthur D. Little, Inc.,1991 25. Every-Flourishing Company – Part One (http://www.youtube.com/watch?v=fv7SCRNZggk&p=9CF28094629C2B36&play next=1&index=61) 26. The Ever-Flourishing Company - Part Two (http://www.youtube.com/watch?v=ij71X6cxv- I&p=9CF28094629C2B36&playnext=1&index=60) 27. Goldratt on Viable Vision - Theory of Constraints (http://www.youtube.com/watch?v=tWvMODJ9cVc&p=9CF28094629C2B36&pla ynext=1&index=54) 13 | P a g e
- 14. 28. Jobs Lose Money? Theory of Constraints Throughput Accounting (http://www.youtube.com/watch?v=LHHnZWKopvA&feature=related) 29. Theory of Constraints Mafia Offer from Its Not Luck by Goldratt (http://www.youtube.com/watch?v=lb-YlDgta2Q) 1.10 Authors Profile International project management consulting / advisory experience with full exposure to top management and ability to assess improve and re-construct customer operations to execute projects faster and more efficiently resulting in accelerated revenues, lower operating costs and efficient use of capital assets E-mail: dhaval.shah@wipro.com shahdhaval_in@yahoo.com 14 | P a g e