CHAPTER THREE-STRATEGIC PROJECT MANAGEMENT

GENERAL STRATEGIC PLANNING

• Strategic planning is the process of formulating and implementing decisions

about an organization’s future direction.

• This process is vital to every organization’s survival because it is the process by

which the organization adapts to its ever-changing environment, and the process
is applicable to all management levels and all types of organizations
 3

Step One -The Formulation Process

• The formulation process is the process of deciding • When this occurs, we say the organization has

where you want to go, what decisions must be been effective as measured by market/public
made, and when they must be made in order to get response.
there.
• A good PM methodology can provide better
• It is the process of defining and understanding the customer/client satisfaction
business/project you are in and how to remain
competitive/ successful within that business or • All organizations must be effective and responsive
project.
to their environments to survive in the long run.

• The outcome of successful formulation results in

• The formulation process is performed at the top
the organization doing the right thing in the right
way (i.e., It results in project management) by levels of the organization. Here, top management
producing goods or services for which there is a values provide the ultimate decision template for
demand or need in the external or internal directing the course of the firm.
environment.
 4

Step One ---

• Scans the external environment and industry environment for
• Formulation: changing conditions.
• Interprets the changing environment in terms of opportunities or
threats.
• Analyzes the firm’s resource base for asset strengths and
weaknesses.

• Defines the mission of the business by matching environmental

opportunities and threats with resource strengths and
weaknesses.

• Sets goals for pursuing the mission based on top management

values and sense of responsibility
 5

Step Two-the Implementation Process

• The second step in strategic planning, implementation, • Integration management is a vital core
translates the formulated plan into policies and
competency of project management.
procedures for achieving the grand decision.
Middle- and lower-level managers spend
most of their time on implementation
• Implementation involves all levels of management in
moving the organization toward its mission. activities.

• The process seeks to create a fit between the • Effective implementation results in stated
organization’s formulated goal and its ongoing activities.
objectives, action plans, timetables,
policies and procedures, and results in
• Because implantation involves all levels of the
the organization moving efficiently
organization, it results in the integration of all aspects of
the firm’s functioning. toward fulfillment of its mission
 6

Step-3 Monitoring And Control

• Examining the underlying bases of a the strategy
• Comparing expected to actual results
• Corrective actions to ensure performance conforms to plans
What is 'strategic project management'?
• As we discussed the traditional PM is not fit to manage world dynamics and challenge, and needs to
be augmented by other perspectives.

• By integrating the more strategic perspectives into traditional PM , something more powerful and
effective emerges - a new process called strategic project management.

• Strategic project management (SPM) can now be defined as:

• The process of managing complex projects by combining organizational or corporate strategy and PM
techniques in order to implement the strategy and to deliver organizational breakthroughs. These
analysis techniques include strategic, operational, organizational and financial analysis.
Why strategic management disappointing???

• ONE
• To get a clearer understanding
of the distinctive contribution • Strategic management appears to be at best only partially
successful in helping organizations to think strategically and
of SPM to the management to implement strategies effectively.

process, let us go back to three • Many strategic decisions are made in a highly incremental
and fragmented way, rather than according to an overall
key reasons why strategic design or 'deliberate strategy'. Because of this, the strategy

management itself is frequently itself may not in many ways be the most appropriate level at
which to conduct detailed strategic thinking.
disappointing.
• A better approach, frequently, is to conduct much (but not
all) of this thinking at the level of the strategic project or a
group of those projects, the strategic Programme, sometimes
known as a strategic breakthrough.
TWO
• The implementation of strategy is often much more complex and difficult than
its formulation - either at the business or the corporate level.

• So, instead of spending 80 per cent of the time in strategic planning and 20 per
cent in implementation development, arguably this should be 20 per cent in
planning and 80 per cent in implementation.

• PM must therefore be capable of dealing with more complex, ambiguous and

political issues than its traditional focus.
THREE

• Besides the above two problems in SM there is a further, significant problem in injecting
strategic thinking into more micro PM. Strategic projects themselves are sometimes managed
by relatively narrowly based, mechanistic PM techniques.

• Activity analysis, Gantt charts and critical path analysis are all well and good, but managers
frequently end up programming the wrong project, having not thought sufficiently about
project options, project strategy, and the link back up to the organizational strategy.

• These three deficiencies in both strategic management and project management gave birth to
strategic project management. So, SPM is very much an eclectic approach to managing projects
as part of overall programmes in order to implement strategy and organizational breakthroughs.
• Managing projects strategically: Conventional project management vs SPM

Conventional project management Strategic project management

Link with strategy AND Project direct and explicit usually portrayed vague and distant highly flexible, creative
Definition as a 'given' depending on options

Project planning follows on directly from project only done once a project strategy is set
definition

Attitude to detail absolutely central -it is all about important but only in context- tries always to
control see the big('helicopter') picture

Importance of emphasis on formal structures: Far-reaching stakeholder analysis - requires

stakeholders project manager, team sponsor continual scanning

The importance of uncertainty Coped with through critical path uncertainty analysis done first, then
analysis(after activity planning) activities planned
The Relevance Of Strategic Thinking To Project
Management

• Strategic thinking is relevant to PM at a number of levels.

1. First of all, projects often materialize as a result of formal or informal strategy development.

2. A second level where strategy comes in is the individual business project which has materialized
on a 'bottom-up' basis. Each project of that kind then needs to be linked back up to the
organizational/business strategy. This should be accomplished by teasing out the strategic
objectives of each and every major project

3. The third level for strategy input is within the project itself. Each and every project has both an
internal environment and, hopefully, also some strategy for achieving its own, inherent
advantage.
Elements of Strategic thinking

• Creative: strategic thinking requires thinking outside the box;

• Relentless: it is not something just purely intuitive, but typically requires analysis techniques;

• Options: invariably there are many options, not merely for what you could do, but also for how you might do it;

• Action: strategic thinking does mean thinking in concrete terms of the actions that will be needed by whom and
by when;

• Advantage: it also is continually focused on getting a lot out of the minimum;

• Implementable: it must help turn the very difficult into the easier and into the feasible;

• Cunning plan: the hallmark that strategic thinking has happened is that it is manifest in the tangible 'cunning
plan'
Strategic thinking is often depicted as helicopter thinking.

• This is now immortalized in the strategic thinking guides of diverse companies including
Domino Printing Sciences, Lex, Nokia, Storehouse, Tesco and Yorkshire Electricity - as wide a
range of companies as one could possibly hope for.

• Figure below depicts a helicopter flying over rough, hostile terrain. Walking, the alternative to
the helicopter, only obscures vision – notice how the competitor's gun is concealed from vision -
and the customer.

• Also, if walking on foot, there is every tendency to go down the rabbit holes, which are
inordinately interesting. Having made extensive use of this picture over the past five years, we
have coined the phrase 'rabbit-hole management' to capture the fact that going down the rabbit
hole can become too much of a habit. Figure BELOW should be used during every PM meeting
in order toavoid too much preoccupation with the wrong level of detail.
Strategic Thinking: The Helicopter View

• “It all comes down to the ability to go up and down the ladder of abstraction, and being able to see
the big picture and the operational implications, which are signs of outstanding leaders and
strategists.” Loizos Heracleous

• Systems thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships
rather than things, for seeing patterns of change rather than static snapshots.” Peter Senge
Strategic Thinking: The Helicopter View…
• One of the key competencies required for • the helicopter metaphor used to simplify and capture the essence of
strategic thinking, is systems thinking and overwhelming concepts of systems thinking which, by the way, are
the helicopter view. concepts that date back to Descartes and Newton.

• Systems thinking views a problem or an • The concept of the helicopter view started with Royal Dutch Shell

opportunity as a part of an overall situation Company last century, when the company found it to be the common
or system. competency among its most successful executives.

• It is now used as an essential leadership competency in performance

• Therefore, the best way to understand a
management contexts, and is referred to by various other names such
problem is to appreciate its place in relation as “peripheral vision” or “breadth of vision” or “power of
to the whole, viewing things with a anticipation” or “clarity of purpose”.
historical perspective that takes into account
events in the past, present, and potential • The helicopter view refers to the ability to rise above the specifics of a
future. particular situation and to see it in its overall context and environment.
It is the ability not only to see the forest for the trees, but it also the
ability to see the big picture without losing sight of the details and
their implications; that, is a sign of outstanding leaders and strategists.
Strategic Thinking: The Helicopter View…

• First, distance yourself mentally from the current situation; it is

• Developing the helicopter similar to “zooming out” when looking through a camera or
when looking at a large wall map or a painting – one has to step
view requires constant practice back to see the whole thing. You should not be surprised if you
see more than one problem or crisis: some problems will be
– it a disciplined way of urgent and short-term; others may be critical and long-term.

looking at strategy and crises. • Second, describe the present situation as though you are looking
at it five or ten years from now. Then ask “what will you do, if
such and such happens?” Various scenarios for the future are
then articulated, and strategies drawn around these scenarios.
• There are three steps that one
• Third, use the helicopter repeatedly throughout the strategy
must practice until it become formulation process to ensure that you are still on the right
course, making sure that you “zoom in” and “zoom out” from
second nature. time to time in order to stay on the right path without loosing
sight of the details.
'Rabbit-hole management'

• The term rabbit hole comes from Lewis Carroll's "Alice's Adventures in Wonderland," in which a young girl called Alice
falls down a rabbit hole, encounters many strange creatures and has many surreal experiences. After Lewis Carroll’s
Alice in Wonderland!

• “Cat:
• Where are you going?
• Alice: Which way should I go?
• Cat: That depends on where you are going.
• Alice: I don't know.
• Cat: Then it doesn't matter which way you go.” ― Lewis Carroll, Alice in Wonderland.

• In a fall down the rabbit hole, an individual sets off on the path with a goal, gets sidetracked by various events and
changes direction several times along the way, eventually ending up somewhere unexpected, typically without having
satisfied the original purpose of the quest.

• Nevertheless, the path often leads to serendipitous discoveries. Furthermore, according to the principle of obliquity, the
meandering path may eventually turn out to be more productive than a more direct one. It is particularly useful for
helping managers to avoid getting bogged down in petty or narrow, personal agendas.
'Rabbit-hole management'
• In summary, strategic (or helicopter) thinking is useful for:

• Checking whether a particular project is the appropriate vehicle for the

strategy in any event;
Generating other options for implementing the project;
• Understanding key opportunities and threats that the project faces in its
environment and its internal strengths and weaknesses;
• Interrelating the project with others in order to understand its total
rationale and value.
SPM PROCESS
 SPM PROCESSES

Need to anticipate the project's implementation difficulty - at the planning stage and even earlier.
Defining the project

• Diagnosing any key problems which gave rise to the project in the first place,
• Defining the project's scope (determining and documenting a list of specific project goals,
deliverables, tasks, costs and deadlines) and main focus,
• Clarifying any key interdependencies,
• Creating an overall vision for the project at a very high level, and its key objectives,
• Thinking through, at least initially, who the stakeholders might be.

• The above reveals that defining the project is not something which is done in
five minutes, nor is it self-evident. Project definition involves a good deal of
reflection about the purpose and context of the project/s
Creating the project strategy
• Creating the project strategy entails:

• Exploring the external and internal environment for the project at greater length;
• Defining more specifically the key strategic goals of the project;
• Examining strategic options for what to do and how to do it, including push vs pull strategies - a push strategy is
one where little discretion is allowed to those stakeholders impacted on by the project, while a pull strategy is one
where the degree of discretion is higher, either over the project's goals or the project's process, or both;
• A preliminary appraisal of the project's overall attractiveness and implementation difficulty;
• Further thinking about the positioning of key stakeholders, and how these might be influenced.

• Project strategy demands even more thought than project definition, as there may be many ways of implementing the
project
Project planning
• A detailed analysis of the key activities and/or subprojects which the overall
project strategy requires:

• An analysis of how these activities are networked in a sequence, given

their interdependencies and also an analysis of their critical paths;
• An appraisal of key uncertainties along with contingency plans and
impact analysis;
• A financial appraisal of the project's value and cost drivers, along with an
overview of the financials.

• Whilst this is the core of traditional project management, project plans will only
ever be as good as the project strategies they are based upon.
Implementation and control

• Definition of project milestones and responsibilities,

• Key implementation difficulties highlighted and countermeasures built-in to resource,
• action plans,
• Some preview of likely project dynamics.

• Implementation and control requires continual checking back to the project's

strategy and vision to ensure that apparent delivery of milestones is actually
fulfilling the original purpose of the project.
Review and learning
• Review and learning involves:

• Revisiting the project to assess whether the targeted deliverables were achieved, whether
the implementation process went smoothly or not, how effectively was the project
positioned politically, and other behavioral lessons;
• Asking how the strategic project management process could itself be improved

• Review and learning is thus not merely a peripheral part of the process but the driver of
continuous improvement in the project process. Generally speaking, review and learning is
frequently the weakest link in the SPM chain. For example, in the pharmaceutical industry
relatively few clinical research projects are subjected to a formal learning review. This is even
though they are frequently not completed on time, and this may result in delays costing
millions of dollars of revenue.
Linking Projects With
Organizational/Business Strategy
Introduction
• In many organizations projects are only loosely connected to the bigger picture
of the Organizational/Business Strategy. This may be due to a variety of reasons.
Why projects loosely connected to the bigger picture of the Organizational/Business
Strategy?

• First, those at the project level may not be fully aware of the Organizational/Business Strategy
itself except in the most general way.

• Top management might be reluctant to share this picture out of concern for commercial
sensitivity, especially in terms of future direction.
• Or, they may wish to reserve power centrally or for political reasons.
• Finally the project managers themselves may not see it as so important that they are
aware of the detailed and specific content of the business strategy.

• Second, the strategy itself may not be clear and worked out in detail. Whilst it may contain some
strategic thinking, these ideas may not be fully integrated, mutually consistent or worked
through. Sadly, it is rather hard to link one thing (a project) to another thing
(Organizational/Business Strategy ) if the second thing only half exists.
What is strategy
• Not only might the content of the strategy be unclear but the very meaning of 'strategy' may itself be
ambiguous.

• A conventional definition (definition A) of the word 'strategy' is the means of getting from where you are
now to where you want to be -and with competitive advantage.

• This definition is useful in that it emphasizes the need to know who you are - and to know this intimately first
- before deciding both where you want to be and how to get there with competitive advantage. This definition
is very much one of a 'deliberate strategy', that is, one based on a well-articulated design to match the
organization and its aspirations with its present and future environment (Mintzberg1994).

• A more stretching, and in some ways superior, definition (definition B) of strategy is the intuitive sense, not of
where the business actually is but where it ought to be, and of what needs to happen to bring about this ideal
state.
• Let us now therefore go one stage further, paraphrasing Mintzberg as: strategy is
a pattern in a stream of explicit and implicit strategic projects designed to create
a specific competitive positioning.

• Whilst many decisions or actions may not be identified as projects, certainly if

they are truly strategic then they ought to be projects, whether this is made
explicit or implicit.

• For if we go back to the classic definition of a project - a complex set of

activities with a predefined result which is targeted over a particular time and to
a specific cost - then strategic decisions or actions are necessarily projects
The strategy mix
• The variety of strategies exist for the following reasons.

• First, this highlights the diverse nature of organizational/business strategy, for if projects are to be linked successfully to
business strategies then this must surely make ample recognition of the very nature of those business strategies first. This
happens by examining the strategy mix and its impact on the strategy, on its implementation and at the project level.

• Next, the impact of incrementalism on projects, how this can create a less favorable environment for the project, and how
this can be diagnosed is examined.

• Then, the role that SPM can play in supporting breakthrough thinking and advantage is discussed.

• Finally, business strategy will be looked at more dynamically as a stream of projects. Whilst strategy is, in practice, often
made incrementally, rather than seeing this a threat to strategic planning as Mintzberg does (1994), we can now see the
project as being an important unit of strategic analysis. SPM thus becomes a way of emergent strategy becoming
deliberate.
The strategy mix
• These forms of strategy are depicted in Figure below which shows a deliberate
strategy at the start, often moving into an emergent phase. Unless its duration
and implementation is steered, it may drift into submergent or emergency
phases, or even detergent (where it is tidied up).
The strategy mix
The strategy mix
• DELIBERATE STRATEGY

• a deliberate strategy is one that arises from conscious, thoughtful, and organized action on the part of a business and its leadership. It’s
typically generated from a rigorous analysis of data, including metrics such as:

• Market growth
• Segment size
• Customer needs/PUBLIC DEMAND
• Competitor strengths and weaknesses
• Technological trajectories

• A deliberate strategy is often employed by large businesses or corporations that are firmly established within their markets. History and
stability provide them with enough data and experience to plot out a long-term strategy (sometimes called a five- or ten-year strategic
plan) and confidence in their ability to project that far out into the future. While useful, deliberate strategy comes with challenges.

• “Being successful with a deliberate strategy is a very complicated problem,” says Harvard Business School Professor Clayton
Christensen in Disruptive Strategy.
The strategy mix
Deliberate strategies vary considerably however, in the extent to which:
• A is actually where you are now;
• whether B is worth going to and thus whether shareholder value will be generated;
• whether the strategy actually exploits your competitive advantage;
• whether the implementation issues are sufficiently thought through;
• whether your commitment to a particular strategic route is sufficient to withstand setbacks;
• whether the strategy has sufficient flexibility to respond to change or not.
The strategy mix
• EMERGENT STRATEGY

• An emergent strategy is one that arises from unplanned actions and initiatives from within an
organization. It’s typically viewed as the product of spontaneous innovation, and often a direct result
of the daily prioritization and investment decisions made by individual contributors, such as middle
managers, engineers, financial staff, and salespeople.

• Compared to a deliberate strategy, an emergent strategy is often more flexible. Though the
organization still has goals that it’s working toward, there’s flexibility to adjust those goals and pursue
other opportunities or priorities as they emerge. As such, many startups leverage an emergent strategy.

• “When you’re managing the process of emergent strategy, you’re not telling everybody that they have
this piece or that piece,” Christensen says in Disruptive Strategy. “What you have to ensure is that all
of the employees are looking for new opportunities to grow.”
The strategy mix
• Emergent strategy

• An emergent strategy (as we have already mentioned) is one which is hard to detect as an explicit strategy at
the time.

• Emergent strategies are more commonly ones whose pattern can only be detected virtually after the event, once
the pattern has been knitted together.

• Emergent strategies vary in terms of how coherent this pattern is after the event and whether they exploit
opportunities in different strategic directions thus, in effect, partly cancelling each other out.

• In the former case emergent strategies are helpful, whilst in the latter case they are positively unhelpful.
Emergent strategies can help achieve strategic breakthroughs by exposing unlikely opportunities.
The strategy mix
• Submergent strategy
• A submergent strategy is one which was either originally a deliberate strategy which has gone
wrong or an emergent strategy which has got itself into real trouble.

• The submergent strategy is an unrealized strategy which has led to damaging results. One
manager described submergent strategy at a major insurance company as being as follows:

• I don't think we really monitored where we were against the plan. We discovered this too late... It was
as if we were on the Titanic, with water levels slapping onto the deck, and you suddenly realize, 'My
God, we are sinking,' and to put it bluntly we need to understand that we are shipping water, and it is
self-evident that we are slipping beneath the waves...
The strategy mix
• Emergency strategy

• An emergency strategy ..is one where there is so little coherence to action that there is
no real sense of direction at all.

• Emergency strategies are characterized by very little longer-term pattern in strategies

with these being mainly reactions to short-term pressures or temptations.

• Emergency strategies are 'off the highway' of achieving longer-term strategic direction.

• An emergency strategy would hardly count as a strategy at all unless it was so

prevalent as it is in everyday reality.
• Detergent strategy
• a detergent strategy is one where a strategy which has not worked in the past is now being
reconsidered, and its various parts which did not work in the past are being discarded, or
changed (Grundy1995).

• A detergent strategy is often called refocusing strategy. The idea of detergent strategy is
perhaps more powerful as it links directly to cleaning up a mess left by an emergent,
submergent or emergency strategy.

• A detergent strategy can be found either as part of a major and dramatic turnaround or as a
more localized attempt to prepare a more solid basis for new deliberate strategies.
The strategy mix
• A key conclusion from the notion of the strategy mix is that no single form of
strategy is therefore appropriate to managing strategies in different contexts.
Deliberate, emergent and even detergent strategies need to be managed together
in a deliberate juggling act.

• The above forms of strategy are all extremely important to business projects for
two reasons.

• Firstly the strategy mix may be predominately of an emergent, submergent or emergency nature,
meaning that it is very difficult, if not impossible, to make linkages between the project and its
higher level business strategy.

• Secondly, the project itself may be in a more emergent, submergent or emergency state.
HOW TO BENEFIT FROM PORTER’S FIVE FORCES FOR
STRATEGIC PROJECT MANAGEMENT?

Linking projects to strategy

Strategy in Project Management: Michael Porter’s Five Forces

• Strategy has always existed, but Michael Porter was the first to create a comprehensive framework
for thinking about strategy.

• His initial framework, and those that followed, are rooted in basic economics, but they extend
economics from an aggregated view of the world down to the industry and organizational level.

• Porter’s original strategic framework from the early 1980’s, the Five Forces Framework, is still
relevant and useful today.

• The following diagram illustrates the five forces that together form the composition of an industry
structure. It begins to describe the basis for competition in that industry.

• Each industry has its own unique structure, and firms compete for advantage within that structure.
The five forces framework is illustrated in the following diagram.
HERE IS WHAT EACH OF THE
FIVE FORCES MEANS:
Rivalry among existing firms:
• Companies in any given industry compete vigorously with each other to better position
themselves.

• Economic theory has stated that firms compete to the point where marginal return is zero, thus
discouraging any further companies from entering and competing in the industry.

• However, in reality there are winners and losers among industry competitors.

• Industry competitive factors include the number and the size of competitors, industry growth
versus stability, fixed versus variable costs, product differentiation, switching costs, the level
of exit barriers, and others.
• QUESTIONS TO ASK: COMPETITIVE RIVALRY

• Are barriers to exit high?

• Are market growth rates low?
• Are there high or low product/services diversification, which could create price wars?
• Do market players have similar strategies?
• Are players similar in size?
• Are there a lot of players?
Buyers

• QUESTIONS TO ASK: BARGAINING POWER OF

• Buyers, or customers, in an industry may have
BUYERS
substantial bargaining power…or at the • Does the customer well informed about a fair
opposite extreme, may have almost none at product price?
• Is the product essential to the customer?
all!
• Can the customer manufacture the product?
• Will customer stope buy a product if the price
goes up?
• It depends on such factors as the relative
• Is it difficult and costly to switch providers?
volume any particular buyer purchases, • Are there substitutes in the market?
standardization of the product/service, the • Do suppliers to the businesses, who produce
products to the customer, are few and have fixed
potential ability of the buyer to switch
cost?
purchases among different industry rivals, the • Does the customer buy only wholesale?
cost relative to other buyer costs, the critically
of quality, and the buyer’s product knowledge.
Suppliers:
• Suppliers have the potential to raise prices or • QUESTIONS TO ASK:
reduce quality, thus tightening industry
profitability. BARGAINING POWER OF
SUPPLIER
• The power of suppliers – the degree of influence
they have – is effected by the number of suppliers, • Are the suppliers to the market can easily
their size relative to the industry they supply, their integrate forward and become players in
vulnerability to substitutes, the relative importance
the market?
to the supplier of selling to the particular industry,
the critically of the supplier’s product as an input • Is it challenging to change supplier?
to the industry, and the threat of the supplier(s) to • Is the supplier-customer base fragmented?
integrate with and become part of the industry. • Are there a few suppliers available?
Potential entrants:
• QUESTIONS TO ASK: THREATS OF
• This refers to the degree of ease with
NEW ENTRANTS
which new players can enter the industry. • Do businesses need significant economies of scale to
succeed in the industry?
• Industries naturally have barriers to entry, • Are there legislation considerations or government acts that
are difficult to implement for a new organisation?
including economies of scale, product
• Are there high provider switching cost for customers?
differentiation, switching costs, access to • Do existing companies have strong customer relationships?
distribution channels, cost disadvantages • Can a new entrant easily access the incumbents’
independent of scale, and government distribution channels?
policy. • Can a new entrant easily access raw materials for
production?
• Is there a supply issue for some essential materials, which
incumbents control?
• Are there intellectual property patent protections that
prevent from creating a similar product?
• QUESTIONS TO ASK: THREATS OF NEW ENTRANTS

• Do businesses need significant economies of scale to succeed in the industry?

• Are there legislation considerations or government acts that are difficult to implement for a new organisation?
• Are there high provider switching cost for customers?
• Do existing companies have strong customer relationships?
• Can a new entrant easily access the incumbents’ distribution channels?
• Can a new entrant easily access raw materials for production?
• Is there a supply issue for some essential materials, which incumbents control?
• Are there intellectual property patent protections that prevent from creating a similar product?
Substitutes:

• Industry scope needs to be broad enough to consider the reality of substitute

products. For example, the rail and airline industries need to be considered in the
context of all modes of transportation, since there is always the possibility of
substitution of one mode of transportation for another.

• Usually, substitute products are a threat when there is potential for a price or
performance improvement for buyers, or if the substitute product or service has a
more favorable cost structure and will produce more profit.
Substitutes:
• QUESTIONS TO ASK: THE THREAT OF SUBSTITUTES

• Is there challenging to switch to other providers?

• Are there a tendency to follow trends in the market?
• Is customers’ loyalty high for the existing brands in the market?
Summary

• There is a friction between each of the four outlying forces and the middle force of rivalry
among industry competitors, and that friction is much of what characterizes the industry.

• Industry competitors are affected by the threat of new entrants, the threat of substitute
products or services, the bargaining power of buyers, and the bargaining power of suppliers.
Barriers to Entry and Exit and the Five Forces

• Among the forces effecting rivalry among existing firms is the existence of entry and exit
barriers.

• High entry barriers exist when it is difficult for new competitors to enter the industry. Low
entry barriers exist when it is easy for new competitors to enter the business and gain a
foothold in the industry.

• Similarly, it can be easy or difficult for firms to exit the industry, independent of barriers to
entry. When there are low exit barriers, it is easy for firms to exit the industry when conditions
become unfavorable.

• When there are high exit barriers, it is difficult for firms to exit the industry when conditions
become unfavorable, which puts pressure on profitability.
Barriers to Entry …
• The chart shows that when there are low entry barriers and low exit barriers, the
returns to competitors tend to be low but stable.

• When entry barriers are low but exit barriers are high, returns are still low, but
unstable and risky.

• When entry barriers are high and exit barriers are low, returns are high and
stable. When entry barriers are high and exit barriers are also high, returns are
high but unstable or risky.
Competitive Scope, Competitive Advantage, and the Five Forces
• The following matrix provides a simple tool that provides some context for companies and
how they position themselves in their industry with respect to the five forces.

• As the chart shows, competitive advantage is mapped to competitive scope. Competitive

advantage is split into two approaches: striving for lower cost, or striving for differentiation
from other competitors.

• Competitive scope is divided into two approaches: having a broad scope of activity or a
narrow scope.
Summary
• Thinking about a firm in terms of where they fall in the chart, or where they might target, provides some
insights for positioning the organization.

• Where competitive advantage is targeted through a lower cost approach combined with a broad approach to
the competitive market, the overall approach is one of cost leadership.

• Where competitive advantage is targeted through a differentiation approach combined with a broad approach
to the competitive market, the overall approach is considered to be one of differentiation.

• Where competitive advantage is targeted through a lower cost approach combined with a narrow approach to
the competitive market, the overall approach is one of cost focus.

• Where competitive advantage is targeted through a differentiation approach combined with a narrow
approach to the competitive market, the overall approach is one of differentiation focus.
HOW TO BENEFIT FROM PORTER’S FIVE
FORCES FOR PROJECT MANAGEMENT?
HOW TO BENEFIT FROM PORTER’S FIVE FORCES FOR PROJECT
MANAGEMENT?...
• At the highest level, the organisation will have a mission and objectives.

• To achieve goals, the organisation will develop strategies and projects to

implement them.

• Poter’s Five-Forces help to systematically understand external competitive

factors and adjust your programmes and projects accordingly.
HOW TO BENEFIT FROM PORTER’S FIVE FORCES FOR PROJECT
MANAGEMENT?...

• Poter’s Five-Forces helps project managers in the planning and initiation stages
of the project.

• The manager will create a plan, define objectives and align with the business’s
strategy and goals.

• The framework helps to consider the external project and business

environment’s opportunities and threats.

• Understanding where Five-Forces fit in the project lifecycle is a good start, but if
we want to use it in project management, it would be helpful to dive a bit deeper.
HOW DOES PORTER’S FIVE FORCES HELP PROJECT MANAGEMENT?....

• Sometimes on the projects, you get to think about business strategy and
objectives, and I find it particularly interesting.

• Usually, an organisation centres the strategy on the business environment and

goals. When the ground that they operate shifts, they adjust the strategy.

• You will be glad to know that there are multiple tools you can use to identify the
current business situation, like a position in the market, customer base and many
more. Poter’s Five-Forces is one of those tools.

• Then, the project manager can use Five-Forces to consider three angles:
HOW DOES PORTER’S FIVE FORCES HELP PROJECT MANAGEMENT?....

• Tangible & Intangible benefits & costs: project contribution to company’s profitability, revenues or
expenses; knowing the competitive environment allows evaluating the attractiveness of specific
solution or product, and what would it cost to compete in the market.

• External Analysis: Five-Forces can be used together with PESTLE Analysis to understand most of the
external opportunities and threats both for the project and organisation. Therefore, using opportunities
to increase project success and threats to address risks. Check out my previous blog on PESTLE as
well.

• Impact of project success, i.e. achieved project’s objectives: looking through the additional lense of
competitive advantage allows the project manager to evaluate the project’s options and goals
comprehensively.
Understanding the internal competitive
environment

• The causes of incrementalism can be understood better by using a picture adapted from
Michael Porter's five forces competitive model for competitive environments - see
Figure 2.3.

• To the very left of the picture we see the legacy from past projects.
• To the centre we see competitive rivalry with existing projects.
• To the right we see future projects - which might either be supported by this project or potentially might need to be
forgone if we do this particular project.
• To the top of the picture we see projects which are interdependent with this one - and which are likely to suffer if this one
does not go ahead.
• And to the very bottom we see substitute projects.

• Not only does this model explain the potentially negative impact of incrementalism, but it also helps diagnose
the project's Organizational environment.
F I G U R E 2.3: P r o j e c t f o r c e s analysis
Understanding the internal competitive
environment…
• For instance, a project which scores highly with the following five forces criteria is
going to have a particularly favourable project environment:

• High fit with future projects,

• High synergies with interdependent projects,
• low rivalry with other projects,
• Low threat with substitute projects (other ways of doing the same thing),
• A lack of legacy of past projects

• Conversely, one which scores poorly on these five forces criteria is

likely to have a very rough ride.
Project programs, interdependencies and
strategic breakthroughs
• A key lesson from our section on incrementalism is that it is likely to be extremely difficult to manage
every issue worthwhile being called 'strategic' within a single process - whether this is called the
'strategic plan' or 'value-based management' or whatever.

• However, by forcing the organization to be more selective in its focus of attention, there is greater
likelihood of being able to turn strategic issues and thoughts into real action.

• To achieve this, breakthrough management now comes to our rescue. Business projects are often seen
by managers as relatively separate activities, unlinked to one another, but in reality many business
projects form part of bigger programmes which in turn form a central part of thebusiness strategy.

• These linkages between projects will be much stronger where there is a relatively clear and primarily
deliberate business strategy.Very substantial and important projects (or clusters of projects) can thus
Understanding the internal competitive
environment…
• A breakthrough project is defined as a project which will have a material impact on either the
organization’s, nation’s or business's external competitive edge, its internal capabilities or its financial
performance, or all three.

• The idea of breakthrough comes from the Japanese philosophy of Hoshin, or breakthrough
management, which is an increasingly well-recognized management technique.

• Companies who have exploited Hoshin include Texas Instruments, Hewlett Packard and SmithKLine
Beecham (see Figure 2.4). Hoshin has a particularly great appeal in high technology markets
principally, because it helps companies to prioritize.

• Hoshin actually prescribes that only a really small number of breakthrough projects or programmes
should be attempted at any one time in a particular business area. The absolute maximum of these
projects is three, and theminimum is one.
Understanding the internal competitive
environment…
• By restricting the number of breakthrough projects to a minimum, the following
advantages are likely to accrue:

• Critical mass of resources is more likely to be achieved;

• Marginal projects will not be undertaken;
• Organizational attention and communication will be focused on a much
Smaller number of things at any one time;
• The organization is less likely to wear itself out on many very difficult
projects
F I G U R E 2 . 4 : Business strategy as a stream of projects
Understanding the internal competitive
environment…
• The advantages of having a very tight number of Breakthrough Projects
significantly outweighs the perceived drawbacks of concerns that three major
areas are not very much then.

• Further, if it were possible to launch and get reasonably well developed projects
within, say, a six-month period, then this would permit as many as nine over an
18-month period (or three projects within each six months)
Understanding the internal competitive
environment…
• Whilst hoshin is found practised more in technology businesses, service industries can
find this approach equally beneficial.

• For example, when Tesco plc, over the crucial four-year period of 1995-98, overtook
Sainsbury, it successfully implemented a number of what one might call breakthrough
projects, especially: Tesco's Loyalty Card; its acquisition of the supermarket chain
William Low in Scotland; the integration of that acquisition; its customer-first
philosophy; expansion into non-food (e.g., fashion, CDs, etc.); its entry into financial
services; product quality enhance-ment; home shopping; new formats and head office
simplification.

• This rate of breakthrough programmes averaged at two-and-a-half per annum (or ten over
the four years)
Understanding the internal competitive
environment…
• Each of these breakthrough projects could be clustered alongside others with
which it has the closest similarity to, and interdependence with, as follows:

• Expansion: the acquisition of william low, product enhancement, Home

shopping, new formats;
• Related diversification: non-food, tesco personal financial services;
• Infrastructure: customer first policy, head office simplification.
Understanding the internal competitive
environment…
• Reverting to our earlier jigsaw puzzle of enlightened incrementalism, we can
now view any new projects against that backdrop.

• For instance, if following its very successful growth in the 1990s Tesco wanted
to make sure that it was managing its (by now) more complex activities for
shareholder value, the corporate centre might hypothetically consider launching
a project on managing for shareholder value (as have BP, Boots and Diageo in
the past)
Understanding the internal competitive
environment…
• Such a project would help to reinforce Tesco's strategic vision and would fit
reasonably well with the organizational and project legacies.

• The project specifics might be not quite so easy to implement within Tesco as it
would require a considerable deepening of understanding of value creation within
Tesco's business.

• This would not be easy toachieve in the very fast-moving environment of retail,
which does not easily support any elaborate weighing of financial technicalities.

• It would also have to somehow fit with current projects underway or ones which are
still being bedded in, such as Tesco's own version of the balanced scorecard
Seeing organizational or national or business strategy as a stream
of projects

• In this section we examine how a business strategy can be seen as a stream of

projects (Figure 2.4).

• This group of projects is not static but represents rather a flow of projects over
time which collectively shifts or transforms the business.

• An important premise in this course is that strategic management should give its
primary attention to managing strategic projects within an overall strategic
vision rather than to developing comprehensive, catch-all strategies top-down.
STRATEGIC PROJECT
DEFINITION