The Need for a Chief Portfolio Officer (CPO) in Organisations
- 10th September 2014
- Posted by: Cranefield-College
- Category: Academic Articles
Author: Professor Pieter Steyn
Source: PM World Today – July 2010 (Vol XII, Issue VII)
A recent IBM survey found consensus amongst CEOs that organisations are bombarded by change and that many are struggling to cope with the transformation. The gap between expected change and the ability to manage the required transformation has almost tripled since IBM’s previous study in 2006. CEOs are moving aggressively towards global business designs, deeply changing capabilities, and partnering more extensively. This trend has great significance for the programme approach to managing the enterprise value chain. It necessitates the introduction of cross-functional programme management structures to create synergy in monitoring and controlling operations. To succeed, CEOs and the full staff complement of the enterprise of the future need to be well versed in the principles of project, programme and portfolio management. Importantly, as programme offices in the organisational structure grow in numbers, the need for an executive position where portfolio managers report increases. It would be unthinkable that they all report to the CEO who, according to the IBM survey, is already “bombarded by change” and “struggling to cope”. The emergent role of Chief Portfolio Officer or “CPO” aims to solve this problem.
The Enterprise of the Future
In a recent IBM study, entitled “IBM Global CEO Study: The Enterprise of the Future”, over 1000 CEOs from around the world were asked their opinions (IBM, 2008). The study found that CEOs are rapidly repositioning their businesses to capture growth opportunities more effectively and efficiently. There is consensus amongst them that organisations are bombarded by change and that many are struggling to cope with the transformation. The gap between expected change and the ability to manage the required transformation has almost tripled since IBM’s previous study in 2006. No more are demanding customers viewed as a threat but as an opportunity to differentiate. It may be added that the impact of the financial crisis that hit the global economy in the latter part of 2008 is accelerating the need for organisational transformation even more.
All CEOs are adapting their business models, and at least two thirds are implementing extensive innovations, while reconfiguring to take advantage of global integration opportunities. In this respect it is then not surprising that for example, customer relationship management (CRM), as a cross-functional process, has become very important in the enterprise of the future. A recent dissertation by Chris van Heerden, a Masters graduate from Cranefield College, convincingly demonstrates that global integration and coordination are best achieved through programme management structures and processes (Van Heerden, 2009). Moreover, the result of the IBM study indicates that CEOs are moving aggressively towards global business designs, deeply changing capabilities, and partnering more extensively. According to Brane Semolic this prompts organisations to create a virtual network of partners that can serve to stimulate innovations and lead to improved competitiveness (Semolic, 2010).
Both the internal environment of organisations and the external environment that they operate in have become much more volatile since the beginning of the current decade. Accelerated information flow inspiring change, requires that management decisions be made more frequently and more quickly (Steyn, 2001). External to the organisation, the marketplace is likewise experiencing volatility. Changes in external environmental dimensions such as economic outlook, socio-cultural issues, politics, ecology and innovative technologies, also impact heavily on the way modern organisations are managed. Improved technologies probably have the greatest impact of all. It motivates organisations to apply innovative continuous improvement by re-engineering their systems and business processes. This, in turn, requires that the knowledge, skills and behaviours of the human resources component in the organisation be continuously improved to sustain a competitive advantage, coupled with effective and efficient knowledge management.
The abovementioned trend has great significance for the programme approach to managing the enterprise value chain. It necessitates the introduction of cross-functional programme management structures to create synergy in monitoring and controlling operations, and includes the virtual network of partners mentioned above, that link to the organisational value chain. The intended focus of a programme management structure for virtual networks of partners is to manage the potential threats, opportunities and innovations that these linkages introduce to the organisation. Cross-functional project management processes are commonplace today, but the urgency to structure an increasing number of non-project operations processes cross-functionally, is becoming more important to organisations as they struggle to escape bureaucratic practises and transform towards learning cultures.
According to Richard Lynch two types of changes impact on the organisation’s environment. Firstly, prescriptive change, which is brought about by a top-down strategic approach and formal control processes, and results from deliberate analysis and planning. Secondly, emergent change, which is triggered by unpredictable events in the external and internal environment of the organization (Lynch, 2006). These events are often unplanned or emanate from experiential learning inside of the organisation, and are coupled with great uncertainty, requiring reactive and adaptive strategies that are negotiation-based, uncertainty-based and human-resource-based. In light of the abovementioned issues, organisations can no longer rely solely on prescriptive strategies, such as profit maximisation, but have to rely progressively more on the emergent approaches to strategy development and implementation. Hence, in order to cope with the turbulence (sometimes even chaos) that the IBM survey alludes to, organisations are reverting to emergent approaches such as survival-based, uncertainty-based and human-resource-based theories and strategies. The last-mentioned category entails viewing human talent and their collective creativity as the most important assets of the organisation.
Coping with Transformation and Change
It is clear that traditional organisation forms and ways of managing organisations are becoming obsolete. Rigid functional approaches to management can no longer cope with the demands of situations. Communication in traditional organisation structures is much too cumbersome, impeding the flow of information and managerial decision-making. This problem is exacerbated by poor bureaucratic leadership. Management in such organisations tends to lack both strategic purpose and customer focus. David Partington (Turner, 2000) asserts that for project and programme management this has become a real challenge, since most of what has been assumed in the past decades no longer befits current reality. Building on the platform of an accelerated technological revolution, the wave of innovation and knowledge explosion, all of society now has to cope with the information revolution and globalisation of the economy. Human creativity within teams is becoming increasingly important within the context of the emergent and virtual team-management environment. Managers are entering more and more into a culture of risk, in that business outcomes are predictable only in the short term. Having to lead and manage in this new emergent culture of risk and uncertainty, organisational structures, leadership and management are compelled to undergo more radical changes than at any time in the past. Moreover, these new structures need to be highly flexible and agile.
David Partington states that to cope with transformation and change in the new millennium, managers have to “blend agility with direction, creativity with control, and flexibility with structure” (Turner, 2000). This means that the rate of change of pace now requires high levels of coordination and integration of strategy implementation, which can be achieved only through effective and efficient programme management. Partington deplores the fact that strategy literature concentrates on theories about how best to formulate and plan strategy, while at the same time underestimating the difficulty of developing and implementing strategy at the corporate, business and operational levels. He contends that organisational transformation and change can best be achieved through programme management structures and paradigms. Maximum flexibility and control are provided by the progress reviews adopted in the programme approach. Its team-based structures are multifunctional and cater for authority, responsibility, accountability, expertise, quick response and cooperation. Moreover, “its structured approach to change allows for the acquisition and diffusion of knowledge in true learning organisation spirit, while its skills are relevant to strategic change programmes”.
How Learning Organisations Structure Portfolios for Cross-functional Project and Normal Operations Initiatives
The best known programme/project structures are found in a project-driven organisation’s Supply Chain Portfolio, for example construction and information technology enterprises that do projects for external customers. Projects are secured through a process where the customer provides project-driven organisations with a request for proposal, and receives project proposals in return. The organisation that submits the winning proposal is then awarded the contract. Steyn (2007) asserts that these organisations often function in a variety of market segments and will generate dedicated project groupings for each segment in the portfolio. In larger organisations this results in the appointment of programme managers for each market segment to whom the project managers in a segment report. In turn the programme managers in charge of the segments report to the portfolio manager who heads up the project driven component of the organisation’s Supply Chain Portfolio.
Through investigating how organisations shape their cross-functional programmes, Murray-Webster and Thiry indicate three additional ways in which portfolios are created (Turner, 2000). These are firstly, the Strategic Transformation Portfolio (also labelled goal-oriented), secondly, the Innovative Continuous Improvement Portfolio, and thirdly, the Capital Expenditure Portfolio. According to Steyn (2001, 2003) organisations can structure their cross-functional portfolios in a variety of ways to accelerate progress towards maturing as learning organisations. Semolic (2010) asserts that a further portfolio is emerging; the Virtual Network of Partners Portfolio that delivers effectiveness to the organisational value chain through product (or technology) innovation (see Figure 1). These portfolios contain cross-functional programmes where the reporting structure is similar to the description in the above paragraph regarding the supply chain.
The programmes/projects alluded to in the above paragraph that constitute the various portfolios, serve internal customers and predominantly focus on enhancing the effectiveness, and/or efficiency of the organisational value chain. Improvising on Stock and Lambert (2001) Steyn (2003) asserts that another group can be added, namely, the non-project driven component of the Supply Chain Portfolio consisting of seven cross-functional business processes. Of the seven only one is a project management process; Product Development and Commercialisation that serves internal customers. Of the remaining six: Customer Relationship Management (CRM), Customer Service Management (CSM), and Order Fulfilment serve external customers; whilst Procurement, Demand Management and Commercialisation, and Operations (manufacturing) Flow Management are normal operations business processes that serve internal customers. Figure 1 is a schematic illustration of how learning organisations structure the cross-functional portfolios in their value chains. In addition, it indicates how the balanced scorecard (BS) is integrated into the systems approach that incorporates the appraisal and review of strategic benefits.
Figure 1: The Balanced Scorecard- Programme Management Learning Organisation Value Chain Schematic
The Strategic Transformation Portfolio
The Strategic Transformation Portfolio (see Figure1) is constituted from strategic analysis, strategic development, and strategy implementation. This programme structure focuses on strategic choices that enhance the organisation’s effectiveness (doing the right things). Successful Implementation of projects in this category deliver radical or innovative transformation and change regarding the organisation’s behaviours, structures and operations, resulting in improved value chain performance. The strategic transformation programme structure is not permanent and only exists for the duration of the exercise.
As the entity matures towards a learning organisation the tasks of this office progressively diminish. Eventually the strategic transformation programme structure can be phased out and only revived when the organisation is in need of more strategic review. An important strategy for this office to implement is the establishment of an innovative continuous programme structure. Since projects implemented by the latter cater for effectiveness as well, it gradually phases out the functions of the former and curbs future radical transformation and change initiatives.
According to Murray-Webster and Thiry, strategic programmes are grouped around a common frame or purpose, such as a strategic objective where uncertainty exists about the final outcome, strategic scope changes may occur, and projects are added or removed from the portfolio accordingly (Turner, 2000). Major benefits that accrue from the outcomes of projects in a strategic transformation portfolio are: firstly, strategies are translated into tangible actions; secondly, emergent changes to strategies during implementation are dealt with efficiently within the structures of programme management; thirdly, risk and uncertainty are reduced through iterative programme development; finally, the deliverable of each project which constitutes an implementation of strategy, is subject to integrated review and approval based on measurement of key performance indicators. A strategic transformation programme concentrates mainly on doing the right things, such as making certain that the right strategies to enhance the performance of the value chain and best achieve the organisation’s vision and mission are implemented.
The Innovative Continuous Improvement Portfolio
Innovative continuous improvement projects result from business initiatives generated from various sources in the value chain (see Figure 1). The requests for proposal take the form of business cases prepared by internal customers, also referred to as sponsors. The projects that result from business cases are prioritised on the basis of benefits of strategic importance. Those projects that will bring the best benefits to the organisation are assigned the highest priority for implementation.
Learning organisations, as opposed to bureaucracies, follow a policy of continuous improvement in everything that they do. Bureaucratic organisations fail to adhere to total quality management (TQM) principles and degenerate over time, losing their competitiveness and getting bogged down in ineffectiveness and inefficiency. Organisations that follow a policy of innovative continuous improvement are always engaged in continuous upgrading of human talent, processes, infrastructure, technology and systems. For this reason innovative continuous improvement is closely associated with an organisation’s Quality Management System and generally present in the structures of ISO 9001 certified organisations.
As a result they hardly ever reach a stage where radical transformation is required. Projects of this kind only lead to adaptive or innovative transformation and change in the organisation. Major benefits that accrue from this approach are multiple and emanate from the appraisal and review of process outputs. Innovative top-down and bottom-up initiatives can be effectively dealt with in a systemic way. As suggested by Murray-Webster and Thiry, multiple initiatives are grouped to create actions that are coherent and efficient, while short-term actions can be fitted into a long-term strategy. Appraisal of derived benefits, based on key performance indicators, can be made with clear perspective (Turner, 2000). The innovative continuous improvement programme approach enables coordination and integration of continuous improvement initiatives across the whole organisational value chain. The main gains are organisational effectiveness and efficiency (doing the right things and doing them right the first time).
The Capital Expenditure Portfolio
A capital expenditure programme is highly prescriptive or specified, and grouped around common themes such a business unit, specific groups of resources, or knowledge areas (see Figure 1). Murray-Webster and Thiry (Turner, 2000) allude to the fact that the benefits include better prioritisation of and control over multiple projects, better allocation and utilisation of resources, and appropriate identification and management of dependencies between projects. These are large capital investment projects such as new plant, equipment and buildings. The main gain of the capital expenditure programme approach is improved organisational efficiency. These projects are also prioritised on the basis of benefits of strategic importance. Projects that will bring the best strategic benefits to the organisation are assigned the highest priority for implementation.
Capital expenditure projects result from business initiatives generated from various sources in the value chain. These are typically the need for new buildings or plant. As is the case with innovative continuous improvement projects, the requests for proposal also take the form of business cases prepared by internal customers. The proposals emanating as a result of these needs normally demand detailed technical specifications, drawings and bills of quantities. Since these projects are generally subject to discounted cash flow parameters utilising net present value calculations and requiring specific internal rates of return, no deviation from the baseline plan is tolerated.
Capital expenditure projects lead to improved efficiency in the value chain. Transformation and change linked to capital expenditure project portfolios are generally only adaptive, as long as staff members who deal directly with new technologies that may be introduced are adequately trained. Capital expenditure projects must only be pursued on the basis of organic growth. In the bureaucratic organisations that have little regard for innovative continuous improvement, capital expenditure projects often result from a need to accommodate waste.
The Virtual Network of Partners Portfolio
The virtual network of partners programme, a relatively new concept of the new economy, is focused on specialised technological innovation projects (see Semolic 2010). An increasing number of organisations realise that networking with supplier partners can lead to beneficial innovation. By utilising the capability of partner resources while optimising their own potential, organisations can improve their competitive capability. Trans-national research, development and production networks are being formed to accomplish co-operation. Moreover, in order to obtain the objective of innovation and competitive advantage, organisations form temporary associations of specific resources.
A virtual organisation is a temporary alliance of partners from different enterprises established to fulfil a value adding task. Skills and core competencies of partners are shared and modern communication technology utilised to master the processes of co-operation. Project teams from different locations are organised into a programme structure and create opportunities for co-operation in development of innovations. The benefits include better planning and control over multiple innovation projects, and better allocation and utilisation of knowledge resources. To be successful specific management skills are required. The human talent engaged in the exercise must be highly knowledgeable and experienced in coordinating and integrating networking activities. The initiating partner is primarily responsible for coordinating and integrating activities.
Like in customer relationship management (CRM) there must be a clear understanding of the abilities of partner organisations and their cultures. Excellent leadership abilities are essential. The primary business functions range from research and development of the product/service, i.e., the technical process, to its sale in the marketplace. Supporting business functions include business planning, financing, programme management, and project management. Effective and efficient governance of a virtual network of partners organisation is essential, and it is imperative to have well defined goals and structures. Moreover, the role that each individual organisation assumes in the network must also be well defined.
The Supply Chain Portfolios
According to Steyn (2001) the Supply Chain Portfolio programme structures are orientated and focussed on customer service excellence (see Figure 1). For this reason, these programmes are generally grouped around initiatives that coordinate and integrate an array of functional and outsourced activities pertaining to the cross-functional business processes serving the organisation’s internal and external customers. Major benefits derived are organisational effectiveness and efficiency in respect of internal and external customer needs. To achieve maximum competitive advantage in the marketplace the supply chain initiatives ultimately focus on high quality external customer service delivery.
Organisations shape their Supply Chain Portfolios’ cross-functional processes into programmes in accordance with the business model adopted. The organisational value chain schematic in Figure 1 illustrates the Supply Chain Portfolio programme structures for both the project driven and non-project driven components of the organisation. An organisation that utilises both structures in its value chain is referred to as “hybrid”. The project driven component generates revenue by doing projects for external customers, while the non-project driven component generates revenue by selling products and services to external customers.
As alluded to earlier three business processes of the non-project driven component, i.e., Customer Relationship Management (CRM), Customer Service Management (CSM), and Order Fulfilment serve external customers. The remaining four are Product Development and Commercialisation, Procurement, Demand Management and Capacity Planning, and Operations (manufacturing) Flow Management that serve internal customers. The three business processes serving external customers are part of this internal customer base.
Pure project driven organisations are unique in structuring the Supply Chain Portfolio. To win orders they tender on RFPs (requests for proposals) received from the external customers. For effective and efficient customer service they create and utilise cross-functional project management processes. Order fulfilment and product development become part of the cross-functional project management process activities and are performed by the project team members during the project lifecycles. The cross-functional project management processes that constitute the project driven component of the Supply Chain Portfolio are still supported by the five remaining cross functional business processes of the non-project driven component of the Supply Chain Portfolio. These are CRM, CSM, Procurement, Operation (manufacturing) Flow Management, and Demand Management and Capacity Planning.
To succeed, executives must come to realise that value creation opportunities of organisations are shifting away from managing tangible assets, such as inventory, plant, property and equipment, to managing knowledge-based strategies, deploying the organisation’s intangible assets (Kaplan & Norton, 2001). These intangible assets include, inter alia, strategy-focussed leadership, a healthy organisational climate, innovative products and processes, employee knowledge and competency, and excellent customer relationships and service. This means that the organisation of the future will be compelled to shed old ways of leading and managing in favour of a knowledge-based approach that embraces innovation and learning.
Professor D A Garvin, from Harvard Business School, describes a learning organisation as “skilled at creating, acquiring and transferring knowledge, and at modifying its behavior to reflect new knowledge and insights” (Garvin, 1993). According to Kaplan and Norton, intangible assets will make the biggest contribution to the competitive advantage of the future organisation, supported by the capabilities and relationships created by innovative staff. This requires that strategy formulation and implementation must become a participative continuous process that aligns all employees with the critical success factors (CSFs) of the organisation. The behavioural strategy variables alluded to above are extremely important, but are not sufficient per se. The future organisation will also have to pay careful attention to its structural strategy requirements to bolster relationships among staff and stakeholders. In order to manage the knowledge-based strategies effectively and efficiently, many processes need to be organised cross-functionally into a matrix.
This has great significance for the portfolio, programme and project approach to managing and reviewing the enterprise of the future. Programme management best provides the mechanisms to effectively and efficiently lead, monitor, control, coordinate and integrate these cross-functional processes into a single system that potently delivers organisational benefits of strategic importance. Moreover, the programme management approach enables effective measurement of key performance indicators (KPIs), appraisal of strategic benefits, and performance of organisation-wide reviews that lead to performance improvement and stimulate transformation and change. To succeed, CEOs and the full staff complement of the enterprise of the future need to be well versed in the principles of portfolio-, programme-, and project management. This will require comprehensive re-education at all levels of the enterprise.
Importantly, as programme offices in the organisational structure grow in numbers the need increases for an executive position where portfolio managers in charge of the various programmes report. It would be unthinkable that they all report to the CEO who, according to the IBM survey, is already “bombarded by change” and “struggling to cope”. This is the emergent role of Chief Portfolio Officer, or CPO, as illustrated in Figures 2 and 3. The CPO should come from the ranks of the programme structures where a cross-functional mindset is cultured and will significantly support the Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Operating Officer (COO) with strategic appraisals and reviews at the executive leadership level.
Figure 2: The emergent role of Chief Portfolio Officer (CPO)
Figure 3: Structures for process-, project-, programme- and portfolio management
There is great confusion in both literature and practice about the definition and application of portfolio- and programme management. A March 9, 2009 publication by Gartner Research (Gartner, 2009) heavily criticises the Project Management Institute’s (PMI) December 2008 document entitled: “The Standard for Program Management”. They express an opinion that the document demonstrates little understanding that the two disciplines of programme management and project management, although related, are distinctly different. Programmes are mistakenly seen by the collection of authors of the PMI document as “simply overly large projects”.
According to Gartner the document provides practices that are disappointing and largely composed of “reused project centric contents and approaches” and demonstrates an overall poor understanding of programme management as a complex discipline. Moreover, Gartner advises their clients not to utilise any of the contents of the PMI document until a proper review has been done. Unfortunately, the vast majority of existing publications on the subject of portfolio- and programme management suffer from similar deficiencies. The current author’s research paper was first delivered in Celje, Slovenia in September 2009, followed by a reviewed presentation in Cape Town, South Africa in March 2010 at the IPMA Research Expert Seminar, and aims to comprehensively address these deficiencies and put modern thinking, including the emergent role of Chief Portfolio Officer, into perspective.
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