How To Ensure Every Investment Is Contributing To Your Strategy

This is a long post, but stick with it, it is very worthwhile.

Measurements of the number of strategically irrelevant projects wasting funds and resources vary from a minimum of 15% to 80% of the overall portfolio. In one organization when the backlog of systems requests was returned to their Sponsors to be re-justified – 91% of the requests never came back.

Funding, supporting and resourcing irrelevant projects is both a major distraction and a major diversion of effort away from more worthwhile investments. Implementing a simple but rigorous strategic contribution measurement process can ensure that all investments are strategically relevant and that you can actively manage your strategy’s execution. And it only takes a week or two to put the prerequisites in place.

The level of strategic irrelevance

Now it is assumed that as senior executives are involved in the proposing, prioritizing and approving of investments, all investments will, by definition, be strategically aligned and relevant. Unfortunately this is rarely the case. An executive team was asked to rank their top five priorities from a list of their top ten highest cost investments. The result was almost unanimous — but the investment most executives ranked as the No 1 priority was found to be strategically irrelevant when scored against the organization’s strategic imperatives.

Our own research, which focused on larger executive-approved projects and programs, has consistently found that around 15% of all investment funds are spent on projects that are strategically irrelevant. Often this irrelevance involved only one or two high-cost programs but their cost bumped up the percentage.

However, other research (by Gartner), which takes into account the smaller initiatives, enhancements and system updates, as well as the larger projects and programs, found up to 80% of projects/enhancements were strategically irrelevant. Because of the lower cost of the smaller enhancements/initiatives, the total wasted money is still below 25% - but this is still a substantial (and unnecessary) sum to waste.

Whether or not a proposed investment – of whatever size and cost – is strategically relevant should be the first question asked. Whatever other merits an investment may have, if it is not relevant to what your organization is doing or where it is going, it is irrelevant and a distraction. The fastest way for an organization to fail is to get distracted and pursue too many strategically irrelevant opportunities.

However, it is important here to be clear what we mean by ‘strategically relevant.’ Strategic assessments take many forms. Investments can be

• Approved with no consideration of any strategic linkage or contribution
• ‘Linked’ to a strategy – which usually means some strategy ‘box’ has been ticked,
• ‘Aligned’ to a strategy – which usually means some strategic alignment justification has been offered,
• ‘Contributing’ to a strategy – which means some degree of alignment is claimed for several strategic imperatives
• ‘Strategy driven’ – which means measurably contributing to a series of strategic imperatives.

Strategy driven

In TOP’s terms, ‘strategically relevant’ means ‘strategy driven’ - that the proposed investment clearly and directly is driven by and is measured as significantly contributing to several strategies and strategic imperatives.

(NB In this context, being compliant with the laws of the land and relevant regulations should be one of the firm’s strategic imperatives thereby enabling ‘mandatory’ compliance projects to be strategically relevant.)

Investment proposals with low-to-no strategic relevance should be culled early. Even if they are a great idea or “are not much work” they are a distraction and will divert resources and management attention away from what is important and needs to be done to achieve the agreed strategy.

In one bank I worked in, the “Staff wardrobe management system project” was fully resourced but several new Treasury products could not get funding or the staff as they had already been fully allocated! This can happen when strategic alignment is assumed rather than verified.

The Strategic Contribution Assessment Tool

Identifying and quantifying each proposal’s strategic contribution is very easy once you’ve created the mechanism – the Strategic Constribution Assessment Tool (SAT).

The SAT captures your firm’s strategy on a page as a series of 4-to-6 stratagems each with a set of weighted strategic imperatives that enable each stratagem’s delivery.

Each proposal, even at the idea stage, can match itself against the SAT’s imperatives and ‘score’ its level of contribution on a four-level scale from no contribution (0) to high contribution (3). Each contribution level is defined so as to remove any ambiguity as to what “high” means. In addition, every claimed match needs to be justified so that over-estimated strategic contributions can be adjusted to reality (we call this ‘normalization’).

The level of contribution (0->3) claimed and the strategic imperatives’ weightings (5->1) are computed and totalled to generate a total strategic contribution score for each proposal. Proposals that score under a certain threshold (this threshold differs for each organization) can be automatically culled as strategically irrelevant.

This simple strategic contribution scoring step can save a massive amount of time, effort and cost at the outset that will otherwise be spent on irrelevant projects.

When each idea, initiative, enhancement, project and program scores their strategic contribution on this common basis the relative strategic contribution of each proposal can be easily assessed. Proposals with high strategic contribution can be prioritized (although obviously other factors come into account too).

Strategy execution control

But there is another valuable output from using the SAT — you can now analyse

• Which strategic imperatives are being addressed by which project investments
• If any strategic imperatives are being over and under-addressed by the investment portfolio
• Which investments are impacted if there is a change to the strategy (eg after a GFC or new CEO)
• The strategic impact of project determined scope changes
• The impacts on the strategy if failing projects are cancelled or rescoped.

In other words, you are visibly in control of your strategy’s execution.

This strategy execution analysis can be quite revealing. In one organization with six key stratagems it was found that none of the portfolio’s approved investments were addressing one key stratagem. A key plank of the firm’s strategy was not being implemented. At the time the executive team decided to ignore this finding. Two years later they were scrambling to fill the void and most of the executive team lost their jobs as a result. All of this could have been avoided as the SAT had, for the first time, made this information easily available and transparent. (It cannot compensate for managerial blindness.)

Implementing a SAT

The introduction of a SAT is a three-step process

• Create the SAT and its supporting “How to use the SAT” documentation that standardizes the contribution scores across the business
• Train the relevant staff in how to use the SAT – this training needs to be ongoing to pick up new staff and any new contractors as they arrive
• Sustain the process to avoid it falling by the wayside, especially when executives don’t like the answers it gives.

In addition, the SAT needs to be reviewed each year (Is it still relevant and correctly weighted?) and renewed every two years from scratch to capture the evolving strategy and strategic imperatives.