1. Introduction

For more than a decade researchers as well as practitioners have realized that in order to succeed in meeting overall strategic objectives of organizations, it is essential to carry out the right development initiatives and projects (Cooper, 2005; Gareis, 2005; Lan-ying & Yong-dong, 2007). However, it is a challenge to identify the right mix of projects in such a way that it matches the overall strategy, and at the same time maximizes profitability under resource constraints and ensures balance, synergies and learning (Cooper, Edgett & Kleinschmidt, 2000; Dooley, Lupton & O'Sullivan, 2005; Gareis, 2005).

Applying Project Portfolio Management (PPM) may be a good choice because it provides a set of tools, techniques and processes to facilitate "the centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related works, to achieve specific strategic business objectives.

1. The Case Company

As of 2008, the case company represents one of the largest industrial groups in Denmark.

The company, which is a global leader, develops and manufactures mechanical and electronic products for several industries. The company consists of three business divisions and one service division and employs about 22,000 people worldwide. Over the past years, the annual net sales have been in the range of 2.6 billion.

The IT department accomplishes development projects in the divisions based on project contracts, and has its internal customers all over the world. It runs about 18 large projects annually. Previously (before 1996), the company had one software platform that supported all the IT activities. All new activities needed to be aligned with this platform, and many decision-makers in the company needed to agree before any changes would be implemented. This IT strategy seemed to be too rigid and inflexible as the company was facing more dynamic environments. Therefore, in 1996, the IT activities of the company were decentralized. Each division got its own IT department and was free to choose the IT systems and solutions it wanted.

1. Developing Project Portfolio Management in the Case Company

In the following, a number of situational snapshots are offered to describe the development from not having a project portfolio management to a project portfolio management approach that satisfied the company. The process was very complex, and some of the situations took place almost simultaneously, however, the description is purposefully simplified to illustrate the experiences more clearly.

Situation 1 - No Synergies (2005)

The decentralization resulted in a lot of different systems and IT solutions. From a corporate perspective this was a challenging situation as it was very difficult to develop common business processes across the divisions and to integrate the IT systems. Further, top management was concerned that the IT decentralization would restrain the company from growing properly.

Challenge: The Company conducted a number of IT-related projects but as they did not conduct any form of project portfolio management they could not benefit from synergies concerning project tasks, resource needs, and IT and project management competence.

Response: As a result, top management centralized IT and decided to implement project portfolio management.

Situation 2 - Missing Overview

Even though the IT staff was centralized, it was not possible to benefit from synergies and conduct project portfolio management immediately, as a thorough overview of the projects within the company was missing.

Challenge: The Company needed to find a way to collect and capture information about ongoing, planned and expected projects in all divisions.

Response: A team from the IT department, consisting of the head of Global Project Management and a key account manager, contacted relevant stakeholders within all the divisions and asked them about their demands for future projects. Based on feedback from the divisions, the team made a list in an Excel sheet of all projects mentioned. Further, the IT department made a rough resource estimate for every project and an estimate for the total IT budget.

Situation 3 - Too Many Projects

When the IT department had made the total project list and the IT budget, it presented the results to two permanent committees within the company, e.g. the IT Corporate Committee and the Executive Committee Plus (EC+). The former consists of the vice presidents of Finance and IT in the divisions, while the latter consists of the company's four Executive Committee members and the presidents of the divisions. Both committees thought that the budget and the number of projects were too ambitious. Challenge: The Company needed to find a way to reduce the number of projects in order to define an acceptable IT budget and a suitable project portfolio.

Response: Managers at the IT department made a recommendation in which they prioritized the projects based on what they knew or thought to be the best for the company in terms of system landscape and governance of IT, together with the way they expected the business was moving. The corporate IT committee approved the project portfolio based on the recommendation.

Situation 4 - Division Presidents Felt Left out (2006)

Even though the divisions were involved in the project prioritizations due to the vice presidents' membership in the IT Corporate Committee, the presidents of the divisions felt that the divisions' interests were not sufficiently taken care of in the project selection process. The presidents could not always relate to the decisions made; neither did they agree with all the decisions. Both the IT department and the Corporate IT committee agreed that it would be beneficial if the presidents were more involved in the decision-making process themselves.

Challenge: The Company needed to find a way to increase the involvement of the division presidents in decision-making processes.

Response: It was decided that the EC+ should be involved in the project selection process instead of the Corporate IT committee.

Situation 5 - Power Struggles

The IT department presented the project portfolio proposal to the EC+. However, the committee members often disagreed on the prioritizations suggested. Heavy discussions followed. Rational arguments were to some extent replaced by power struggles in which 'the ones who could shout the loudest' or 'had the most stars on their shoulders' would get their projects done. This process was very exhausting and unpleasant for the participants, and committee members were concerned that the outcomes for the company would not be worthy.

Challenge: The Company needed to find a way to make proper project selection decisions without power struggles.

Response: It was decided that a business case analysis should be carried out for each project proposal so that the EC+ could base their decisions on comparisons of assumed business benefits and pure cost-benefit calculations.

Situation 6 - Complex and Tedious Calculations without Effect

The various divisions tried to carry out business case analyses for their project proposals. However, this process was difficult and demanded a great deal of efforts. In many cases, the analyses were not completed. At the EC+ meetings, the participants were not willing to fully base their decisions on the (insufficient) business case analyses. Sometimes, the argument made was simply: 'This project is important. Everybody can see that, so we have to do it.' The business case analyses did not fully solve the power struggle problems. Further, it was realized that more soft criteria for project selection were needed.

Challenge: The Company needed to find another way to reduce the power struggles and a way to incorporate more soft criteria in the prioritization process.

Response: The IT department began to interact with the divisions in a different way. Furthermore, the head of Global Project Management presented the outcome of the analyses differently in the meetings with the EC+.

Situation 7 - Commitments to the Pie chart

The head of Global Project Management and an account manager visit every division once a year and conduct follow-up meetings to discuss potential future projects for the next year or year and a half. Some of the projects discussed are new; some are active last-year projects or on-hold projects. If the sum of the budget demanded in order to run all projects is large, a prioritization process takes place within each division. The result is a prioritized portfolio of projects within each division. Further, a decision regarding the question about which projects to take on together with a matching budget is made by the president of the division. When prioritization within each unit is done, the IT department presents the result in a pie chart to the EC+ to obtain their agreement on the summed budgets. This pie chart together with a list of the major initiatives in each division is presented at the EC+ meetings. However, in opposition to earlier practice, not all projects and all financial details are presented at these meetings. If the summed budget is reasonable for the EC+, it is confirmed. If not, the pie chart needs to be reduced. In this case, decisions are postponed while each division negotiates with the IT department. Afterwards, a new meeting is held. This process is reiterated until the EC+ accepts the budget. However, the divisions would like to receive more help when it comes to the process of selecting and prioritizing projects within their project portfolio.

Challenge: The Company needed to find a way to help the divisions in their project portfolio management processes.

Response: The IT department has begun to search for new ways of selecting and prioritizing projects.

1. Analysis

The challenges in PPM implementation vary depending on development phases and maturity in implementing PPM within companies (interview with an expert, June 4, 2008). Centralization (situation 1) was a change in the organization structure of the company in order to be able to adapt it to the growth imposed by its dynamic environment. According to Leavitt (1964), a change can be initiated in order to improve productivity in four possible areas in organizations: People, Tasks, Tools and Structures (where Processes are included in Tasks). All four dimensions are correlated systematically so that change in one will sooner or later affect or change the others.

Theoretically, project portfolio management strives to achieve three main goals: maximizing profitability or value maximization, strategic alignment, and balance among all projects (Cooper et al., 2000). To achieve the first goal, i.e. maximizing profitability, there is a wide variety of different economic methods for project selections. These methods attempt to evaluate projects in their contribution to the firm's profit. Amongst all, financial methods are the most popular ones, e.g. Net Present Value (NVP), Internal Rate of Return (IRR), and Cash Flow Payback (Cooper, Edgett & Kleinschmidt, 1998). The NVP is the most commonly used and the most accurate method. Often, both NVP and IRR are used simultaneously, but the final decision is based on the NVP method (Byrne, 1992). The financial approach is a popular method, but it has more weaknesses than strengths (Cooper et al., 1998; 1999).

Questions:

1. What is the power struggle challenge and what is your recommendation to overcome this challenge in the organization?

1. By review the situation 1, how the organizational structure impacts the portfolio management effectiveness?

1. In situation 2, what is your reflection on the response of the IT team? Do you think matching the projects with resource and budget would be sufficient? If so, why and if not what other criteria may be considered?

1. Do you agree / disagree that implementing an effective portfolio management needs a successful change management? Why or why not?