Lets look into the relevance of the portfolio alignment with the Organisational Strategy.
For that, let us first understand what is organizational strategy, and then look at how portfolios align with that strategy.
Organizational Strategy:
Michael Porter says that strategy is about competitive position and about differentiating yourself in the eyes of the customer, and about adding value through a mix of activities different from those used by competitors.
In short, he believes that organizations need to have a unique or different offering than their competitors in order to gain competitive advantage.
This comes down to selecting the products and services to offer, the markets in which to offer them, and the way in which those products or services are offered through the capabilities in the organization.
So, Organizational strategy could be broadly categorized into:
Cost leadership – the objective is to offer products and services at a lower price than competitors.
Quality – the objective is to offer the highest quality product or service in the marketplace.
This can be achieved through implementing quality throughout all activities.
Flexibility – the objective is to have the highest flexibility in products and services offered, allowing customers the highest level of customization.
Organizations looking to keep a competitive advantage have realized that creating a strategic plan is not enough. The execution of that plan is where the value is created. And that is exactly where portfolio management comes in.
So, Projects and programs must be considered as investments and therefore, must be chosen with a clearly defined process and monitored closely for strategic relevance.
Portfolio management: ensures that projects and programs promote organizational strategies and goals. It accomplishes that by avoiding the common trap of trying to execute every project that sounds like a great idea in an environment of limited resources.
It requires disciplined decisions driven by agreed upon priorities. It is an approach for investing in a categorized collection of projects and programs that support the business strategic goals and objectives.
Now, some projects within the portfolio will have high risk and high return, while some will have low risk with a modest return.
Portfolio management allows the organization to not only monitor the results of individual projects and programs, but also gives insight into the how they contribute to the strategic goals. Thereby helping the top management into taking decisions on the right projects and portfolios to execute and stop or keep on hold the projects or portfolios that do not align with the strategic objective of the organization.