Abstract
A leading high-tech hardware manufacturer faced the challenges of analyzing its portfolio of IT initiatives and projects, confirming alignment between initiatives and corporate strategy and rationalizing its spending based on project contribution to specific drivers of value.

The Challenge
The goal was to optimize the project portfolio by pursuing initiatives that create the greatest value. The CIO was tasked to demonstrate the linkage between IT investments and corporate strategy. 

How We Helped
Step one was to inventory projects and check their alignment with specific drivers of enterprise value (e.g., revenue growth, margin improvement, improvement of asset efficiency). Going into this analysis, management was uncertain about what they would find. To their surprise, the process revealed that their initiative alignment was in fact on target: while there was inevitable overlap among projects at lower levels, key value drivers were supported by every project. In other words, no key business objective was unsupported by an initiative, and no projects or initiatives were aimed outside corporate strategy.

Step two was a cost/benefit analysis of the project portfolio to quantify the return (measured as contribution to value driver) versus the spend. Recognizing that a single project or initiative may support more than one value driver—and in different proportions—the CIO sought to fine-tune the alignment of the portfolio.

She found that by classifying sub-level project spending she discovered better reasons for weighting spending decisions within a given project.

For example, spending at the sub-project level could be determined to favor revenue growth more than margin improvement. In addition to guiding the spend, this discovery facilitated her ability to vet projects (or components of projects) on the basis of their contribution to value.

A further specific finding of this detailed analysis was that two projects contributed more than 90 percent of cash flow, while representing only about one-third of the cost of the portfolio. This revelation prompted a strategic question of great relevance: was the company comfortable having most of its eggs in these two baskets?

Lessons Learned

• The CIO confirmed the alignment of the portfolio of initiatives with the business strategy.
• Overlapping initiatives were combined resulting in significant cost savings.
• The CIO was able to make more informed decisions on spending—relative to the creation of enterprise value:
  • by improving the quality of spending as a driver of value
  • by improving the return on specific investments in the project portfolio to bring them in line with the company’s most important value objectives

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In our latest Straight Talk Book, The Value Habit (A practical guide to creating value), we examine behaviors that commonly work to destroy the concept of value and explore eight value-creating behaviors you can use to overcome those bad habits. This success story illustrates our "Value-creating behavior #3: Align your portfolio of initiatives with your objectives and strategies." Visit our Driving Enterprise Value section or order a complimentary copy of The Value Habit to learn more about these value-creating behaviors.