| Articles » The Failed Strategy of Corporate Executives and Why It's Costing Investors Billions |
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The Failed Strategy of Corporate Executives and Why it's Costing Investors Billions |
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| Corporations throughout the world are losing billions in wasted
project spending and this waste is being carefully hidden from management
and investors.
A global research report shows that one of the biggest contributing
factors is the lack of alignment of projects with corporate strategy. |
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| A Billion Dollar Problem |
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The cost of the problem is staggering. A recent example is Royal
Dutch Shell on their biggest and most prestigious project, Sakhalin
Energy, a Siberian liquefied gas facility. For Shell alone, project
costs for Sakhalin Energy doubled from $10-billion to $20-billion
(U.S). According to The Times in London the humiliation was even
greater because, the Shell chief said, he had not been made aware
of the cost increase. The fiasco for Shell is not exclusive. In
the IT sector, the results of The Chaos survey from The Standish
Group shows that 71% of all projects are either “challenged”
because of late delivery, being over budget, delivering less than
the required features or they are “failed” because of
being cancelled prior to completion or the product developed is
never used. This statistic has not effectively changed since 1994. |
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In addition, in 2004 Pricewaterhouse Coopers found that only
a handful of projects ever achieve project success. Their survey
focused on a broad range of industries, large and small, in 30 different
countries, which represented 10,640 projects, for a total value
of $7.2 billion. They found that only 2.5% of global businesses
achieve 100 percent project success. |
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| The lack of project success is not surprising given the
newest research findings from our own research with over 750 organizations
worldwide. A major reason for project failure is that most organizations
do not ensure that all projects they implement align with their organization’s
core strategies. In fact, 80% of organizations in the research study
had no formal business case for the development of their Project Management
Offices (PMOs) (See illustration 1) and 73% of organizations identified
“lack of executive sponsorship” as being the primary reason
for failure of their PMO. (See Illustration 2) |
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PMOs were implemented for the right reasons and failed
to deliver. Essentially, they operated at too low of a level
and needed to move up to the Senior Executive level so that projects
could be strategically aligned.
Illustration 1 - Top Reasons for Implementing a Project Management Office
PMOs are doomed to failure when there is no or insufficient
executive support and the organization does not support it.
Illustration 2 - Top Reasons for Failure of Project Management Offices
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| If organizations were to implement only those projects
that were in alignment with their strategic goals, their success rate
would increase dramatically because executive sponsorship would not
be an issue. However, our recent findings show that the majority of
projects on the go are not associated with corporate and/or departmental
strategic plans. Only thirty-two percent (32%) of respondents said
they had a process for prioritizing projects. Therefore it is not
surprising that failure is rampant because senior executives are not
at the helm to provide guidance, direction and support to projects
within their organization. As well, we found that 68% of organizations
had no systematic approach in place to prioritize projects or link
them to corporate and strategic goals. |
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| What You Can Do to Align Projects with Corporate Strategy |
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| 1. Undertake a review of all the projects that are currently
underway within the organization as well as those completed over
the past year.
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- Ask every department to list all of the projects that they
are currently working on. What is the goal of each? What is the
strategic alignment, if known?
- Create an inventory of all projects in the organization, regardless
of size or scope, that are currently on the go within all departments
and within the whole organization.
- Measure each of these projects. Are they are on time and on
budget according to the original scope? Are they meeting customer
requirements as defined? Or are there no measurements in place?
- Identify projects completed over the past year and measure
their success rate. These lessons learned will help to identify
project prioritization in the next step. For example, if many
projects were unsuccessful because of a lack of resources then
resources required to complete future projects should be considered
a criteria for determining project viability. If a project requires
many resources, they may rate low on this criteria. If you decide
that it is a strategically important project you will have to
ensure that the right resources must be made available or the
project might fail.
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| 2. Develop a systematic approach to prioritizing all
projects.
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- Develop criteria against which to prioritize all projects. Include
impact on corporate strategy and customers. This is best done
with a sub-committee of senior management.
- List all projects along with their goal, purpose and strategic
alignment and the identified criteria necessary for determining
the expected impact each project will have on the organization,
its departments and its customers. This process will allow you
to rank each project quantitatively and determine its level of
priority.
- Establish a committee of senior management to review and assess
project prioritization on a monthly basis. This committee will
provide final approval on all project implementation priorities.
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| 3. Align projects to corporate and departmental strategic
plans.
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- Review the corporate and departmental strategic plans and if
none exist meet with the senior executive team to gain an understanding
of the key strategic priorities.
- Examine all projects to determine their alignment with the
corporate strategic goals. This strategic alignment will demonstrate
how each project’s successful execution will support the
corporate and/or departmental strategic plan.
- Terminate projects that are of low priority or not somehow
linked to corporate and/or departmental strategy. Their immediate
termination will ensure they stop costing the organization money,
resources, time and lost customers. Projects not linked to corporate
or departmental strategy add no measurable value to the organization.
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| Summary |
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| The outcome of project failure is wasted dollars that
steal investor profits and have a negative impact on the organization’s
bottom-line. Aligning projects with the strategic goals of the organization
is critical for project success and proper return on investment. Superior
business performance is dependent on good project management as well
as the creation of a culture that supports projects. To this end,
senior management needs to contribute more of their time and effort
to sponsoring and prioritizing projects on the basis of their strategic
fit. When projects are in alignment with corporate goals they will
be able to meet profitability targets and generate the necessary return
on investment. |
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| About the Author |
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| As President and CEO of Business Improvement Architects, Michael works with executives and senior managers around the world to help them improve operational effectiveness through strategic planning, leadership development, project management and quality management. He has been instrumental in helping his clients reduce waste and increase efficiencies and profits with his clear processes and quality approach. |
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| For more information about this article or the report, please contact
bia™ at info@bia.ca. |
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| Michael Stanleigh is the author of the global report: “2010 PMO Global Study: How a Project Management Office Can Improve Organizational Effectiveness”.
For more information about this article or the report, please contact
bia™ at info@bia.ca. |
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| © Business Improvement Architects |
