To develop or maintain a competitive advantage in the marketplace it is common practice to evaluate the actions of industry leaders if possible. Although we have discussed this thing called “project portfolio management” on this website numerous times, let us look at some historical data collected during two independent studies comparing the actions of industry leaders against the laggards*.
The first study that we will review attempted to answer the following question “Is there a systematic relationship between sound project portfolio management technique usage and the financial success of companies”.
The study included 205 businesses with an average of $6.4 billion in annual sales. The breakdown of the respondents by industry was:
- High technology – 17.6%
- Processed materials – 8.3%
- Industrial products – 8.3%
- Chemicals and advanced materials – 26.3%
- Healthcare products – 6.3%
- Others – 19.0%
At the time of this study 37.9% of the leaders had an institutionalized approach for idea generation in their organizations compared only to 11.5% of the worst performers. Also, almost 65% of the best performers conducted technical assessments of their projects. Only 23% of the worst performers did that (see Figure 1).
By the same token market research preceding the project approval was undertaken by almost 38% of leading organizations. Merely 7.7% of the worst-performing companies assessed market conditions before project approval (see Figure 2).
Business cases required for the project proposals assessment and approval were built by 57% of the industry leading firms. Just 23% of the worst performers invested time and effort into proper project proposal analysis.
Almost 45% of the leaders investigated product performance after the completion of the project, whereas only 7.7% of the worst-performing organizations researched whether the products they created had indeed performed as well as the initial forecasts (see Figure 3).
The results of this study clearly demonstrate a very significant correlation between the occurrence of project portfolio management and the overall financial success of the companies evaluated.
Let us now review the results from our second case study focused on new product development best practices to see if there is further evidence of this strong correlation (see Figure 4).
In the category of “Formal and Systematic Portfolio Management in Place” leading firms outperformed the laggards by a ratio of 15:1 (57.1% vs. 3.8%).
When it came to aligning resource allocation to the overall strategy of the company, the best performing organizations beat the worst performers by a ratio of more than 8:1 (65.5% vs. 8.0%).
37.9% of the industry leaders had high-value projects in their portfolios, while the bottom-third firms had none.
31% of the best-performing companies were found to have an excellent balance of project types in their portfolios. None (0.0%) of the bottom companies could make the same claim!
29.2% of the top performing organizations did a good job prioritizing their projects, while only 12% of the worst performers did a good job prioritizing their projects.
Another interesting result is that the top third of the best-performing companies in this study used various portfolio management methodologies and approaches to assess and select their projects. The only unifying aspect of many of the firms in the “industry leaders” category was the consistent usage of the three key pillars of project portfolio management: finding high-value projects, balancing the portfolio mix and aligning the project mix with the strategy.
Obviously the results of this study also clearly demonstrate a significant correlation between the occurrence of project portfolio management and the overall financial success of the companies involved.
*Cooper, RG, Edgett, SJ, Kleinschmidt, EJ. Portfolio Management for New Products. Basic Books, 2002
About the Author
Jamal Moustafaev, MBA, PMP – president and founder of Thinktank Consulting is an internationally acclaimed expert and speaker in the areas of project/portfolio management, scope definition, process improvement and corporate training. Jamal Moustafaev has done work for private-sector companies and government organizations in Canada, US, Asia, Europe and Middle East. Read Jamal’s Blog @ www.thinktankconsulting.ca
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