Is Your Organization Ready for an Enterprise PMO

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This research note is restricted to the personal use of Renata Kaufman ([email protected]).

Is Your Organization Ready for an Enterprise PMO?07 November 2011 G00219055

Analyst(s): Donna Fitzgerald

SummaryWhether or not an enterprise PMO ca n be effective often depends on how executive management assesses the organization's current

market conditions. This research outlines four possible responses, and maps the appropriateness of an EPMO under each circumstance.

ARCHIVE

This research is provided for historical perspective portions of this document may not reflect current conditions.

OverviewWith the continued uncertainty in worldwide economic conditions, Ga rtner has seen a steady increase in the number of clients requesting

information about setting up an enterprise program management office (EPMO). The key factor we've identified behind building a

successful EPMO is the readiness of the prospective EPMO head and the organization's appetite for decision making at the enterprise level.

Key Findings

EPMO, as a construct, was originally assumed to be appropriate at Level 4 of Gartner's PPM Maturity Model. Recently, it has become

clear that external market forces play an important role in determining when and how an EPMO develops.

The key determinant of the role an EPMO should play in the organization and what services it should offer is directly related to the

mind-set and operating practices of the organization itself.

Strongly operationally focused organizations do not lend themselves well to the formation of EPMOs.

Some organizations require an EPMO focused on portfolio management. Other organizations, however, require both portfolio and

program management support.

Recommendations

Determine which of the four change drivers is currently operating in your organization, and determine if an EPMO would be

appropriate.

Match the service offerings and leadership capabilities of the head of the EPMO to the needs of executive management.

Ensure that the EPMO is perceived by all parties as being politically neutral.

AnalysisIntroduction

What would be your response if the CFO or, better yet, the CEO a sked if you could help him get control of all the projects and

programs in which the organization was investing or wished to invest? Not just IT projects and programs, but everything that was being

done. Most of us would answer, "Of course anything you want," and then potentially find ourselves in trouble when it later became clear

that our interpretation of "control of projects and programs" wasn't in the same universe, let alone on the same planet, as what the

executive team really wanted.

On the flip side, you might be the one who has identified that there are serious disconnects between the different business units that are

working on what is supposed to be a single program. Theoretically, IT is managing the program, but all you can see is the "dropped balls"

and the increasing scope drift. Would it make sense for you to approach the CFO or the CEO and propose some sort of oversight

organization at the enterprise level?
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If either of these two situations describes the one in which you currently find yourself, you aren't alone. Since 2008, Gartner has seen a

steady increase in discussions regarding how to set up and operate what we currently call an "enterprise portfolio or enterprise program

management office." These inquiries have come from organizations of every size and shape, and, to our surprise, at all levels of program

and portfolio management (PPM) maturity. This was a completely unexpected turn of events. When we first identified that EPMOs were

being implemented, all the clients we talked to were at higher levels of PPM maturity, and we assumed that the EPMO was a natural

outcome of organizations that had reached either Level 4 or Level 5 maturity.

Although PPM maturity d oes have a significant influence on the services and functions an EPMO ca n a nd should offer, it turns out that

maturity isn't a threshold condition for the formation of an EPMO. Beginning in late 2007, we first observed a small number of companies

with an enterprise PPM organization. These organizations were clearly at the high end of the maturity curve, and it appeared logical to

position the EPMO construct at Level 4 so as not to push less mature organizations into adopting a management structure before they were

ready. The global financial crisis in 2008 changed this, though. Now, our EPMO discussions are almost exclusively with clients from

organizations at Level 2 or Level 3 on the maturity scale. (#dv_1_gartner_received)

Important to the formation of an EPMO is the desire of executive management to have a dedicated staff function to help oversee the

efficacy of the investment in projects or programs as a way of creating enterprise value. An EPMO, by definition, is not focused on the

methods or mechanics of either program or portfolio management the fact that these capabilities exist is generally taken for granted.

What the EPMO does focus on, however, is being the eyes and ears of executives who simply don't have time to do all the work themselves,

and who want to entrust a few people with talent in the PPM area to ensure that the things they (executive management) want to happen

are getting done. For lack of a better term, we have taken to calling this the "pull" model of EPMO formation.

We a re also seeing a n increase in calls from clients running an existing PMO (a lthough, generally, it's not always located in IT) who feel

they are being asked to oversee cross-functional programs for highly siloed organizations, and the only way they can see to do this

successfully is to move up to the enterprise level where their coordination activities would fit more naturally. In this case, it is the PMO

"pushing" on executive management to give it an official enterprise charter, instead of, to quote one client, just "expecting us to work

miracles."

Having identified these two trends (pull versus push), we were immediately curious as to whether the source of the impetus for the EPMO

made a difference in its success rate, since PMOs, as an organizational construct, have an unusually high failure rate (see Note 1).

(#dv_2_a_2009) It would be wonderful to say that we noticed significantly higher success rates in PMOs that were "pulled up" to the

enterprise by executives than those that were "pushed" by a current PMO leader. But the truth is we haven't, since success seems to rely on

the concept of dual readiness. The individual running the EPMO must be ready to operate at the enterprise level, using a combination of

servant leadership and political savvy, at the same time that the executives are willing to work in tandem with the EPMO.

Figure 1 depicts what we call the "push you/pull me" paradigm of EPMO creation. The model shows that the EPMO is generally created

when the desires and capabilities of the prospective head of the future EPMO are exactly in sync with the desires of the executive team to

have support at the enterprise level. Notice that the arrows point inward toward the EPMO. Failure to have the two desires in sync causes

the situation to revert to something that looks similar to the two-headed "pushmi-pullyu" character found in the Dr. Dolittle stories by

Hugh Lofting, where any action done by one of the heads creates an equal and opposite reaction from the other, leading to a stalemate.

Figure 1. The Push-You/Pull-Me EPMO Paradigm

Source: Gartner (November 2011)

Having stated that, at the highest level, the secret to success for an EPMO is having a balance between capabilities and sponsorship, we can

now move down a level and describe the elements that contribute, influence or inhibit success.

Executive Readiness for an EPMO Depends on the Business Environment

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In our experience, members of the management team rarely, if ever, wake up one morning and say, "I think I'll establish an EPMO today."

Something always drives the decision. Generally, it's a perceived change in the business climate. In Figure 2, we've identified four different

perspectives we often see management adopt, based on their assessment of what's happening in the world.

Figure 2. Drivers for Change

Source: Gartner (November 2011)

For Operationally Oriented Organizations, the EPMO Is a Solution Looking for a Problem

The focus of the two lower quadrants is inherently operational in outlook. Organizations in what we call "stable market conditions" (see

"How Economic Conditions Influence PPM Maturity Level Progression" (http://www.gartner.com/document/code/206429?

ref=grbody&refval=1841915) ), which, up until now, included most government agencies, tend to naturally focus on doing what they do

well, with the goal of ensuring as little disruption in day-to-day a ctivities as possible:

Run the Business Quadrant (lower left) When times are good and the business outlook is stable, top management tends to

leave well enough alone and focuses primarily on operational concerns. In this environment, organizations sometimes don't feel theneed to have any sort of PMO, since the organization's operating model reflects that most things can be done with small, incremental

improvements, and that project work, if it happens at all, is, at best, an occasional, one-off event led by outside consultants.

Planned Improvements Quadrant (lower right) Here, the market is relatively stable, but the company is focused on

establishing at least a "fast-follower" status in the marketplace, based on the belief that action now will keep the "wolves" of externally

driven change (that is, the top two quadrants) away from its door. For this reason, companies often choose to articulate a plan of

action, and then ask the strategic business units (SBUs) and functional areas to "make it so." Projects are generally done by single

business units and consultants, with line managers p roviding most of the "management expertise." For more mature organizations in

this quadrant, the PMOs will generally be set up in IT, but their focus will be limited to project execution.

Organizations in these two quadrants generally prove to be uninterested in establishing enterprise-level PMOs. To put it bluntly, from their

perspective, the EPMO is a solution in search of a problem. We have talked to a few clients in this quadrant where an EPMO was set upbased on the recommendation of an external pa rty, and the aftermath wasn't pretty. The EPMO ha d a very short life span (less than two

years). It was formed with no clear mandate a nd no real support, a nd it naturally gravitated toward a method and compliance perspective.

When Change/Adaptation Is Inevitable, the EPMO Is Often the Right Answer

The situation starts to change when an organization is forced into the top half of Figure 2. Very few companies would choose to operate in

a state of continuing adaptation if they had a way to avoid it. Some industries are located there naturally (high tech, for example) because

a steady stream of competitive products and emerging competitors keeps the company perennially on its toes. Others get dragged to this

state by market forces beyond their control.

This elegantly makes the point of why the entire concept of an EPMO is beginning to make sense to more organizations: The world

economy is uncertain, and the ripple effects are being felt in some form or another in every organization in the world:

Survival-Induced Change Quadrant (upper left) In this quadrant, there is an issue (possibly a short-term one) with the

viability of the current business model. At some time or a nother, every organization is certain to make a trip through Quadrant 3. Even

governmental agencies are facing the fact that there simply won't be enough money collected through taxes to fund everything they're

doing and still drive down debt (or keep debt from growing). Generally, organizations go from Quadrant 1 (with a "heads-down" focus
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on their business), to finding themselves in Quadrant 3 without the skills or capabilities required to be successful in making the required

changes. This is an environment where we often see the beginning of the "pull me" side of our equation. Executives know they need to

take effective action, and an extra pair of hands begins to sound like a good idea.

In general, the focus of organizations in this quadrant has been to concentrate on setting up an enterprise portfolio. They know they

have to make the right investments to succeed, and they know the clock is ticking.

Strategy-Induced Change Quadrant (upper right) The difference between strategy-induced and survival-induced change

often lies in the foresight of the executive team. In this case, the company might be in a highly dynamic environment, but they're a step

ahead of the survival curve. They can look into the future and map a plan of how they can move from good to great. Operating in this

quadrant is actually very risky. Change of this magnitude may or may not pay off. For every success story (IBM in the 1990s,(#dv_3_in_his) for example), a recent quote from Bloomberg Businessweek (#dv_4_love_a) shows that the road to strategic change

was once fraught with peril:

"Think of GM's failed auto design strategies and, more recently, Blockbuster's lethargic adjustment to the consumer shift to digital

media. Just ask retail giant Walmart, whose U.S. sales have slumped for the past seven consecutive quarters, although the big-box

retailer seemed poised to slay such competitors as Target and Costco."

Obviously, not all strategies work out, but risks aside, the focus in this quadrant is on defining not only the strategy, but ensuring that

the strategy, once defined, is appropriately executed. It is in this quadrant that the EPMO, as opposed to the enterprise portfolio

management office, is set up.

Returning once again to our push-you/pull-me model, it is now possible to evaluate the possibility of success, depending on the quadrant

in which an organization chooses to classify itself.

Evaluate Your Organizational Readiness, and Set Up the Appropriate EPMO Services to Match

Skip the EPMO If Your Organization Is in the Run-the-Business Quadrant

Organizations that focus on running the business are generally not good candidates for an EPMO. The three questions below are a simple

way to see if your organization would fall into this quadrant:

1. Do most of your company meetings focus on running the business?

2. Does the organization choose small, incremental improvements over larger projects?

3. Has the business been delivering reliable revenue and reliable profits, even if there might be more money to be made if new markets or

alternatives were more aggressively pursued?

If you answered yes to these questions, then we recommend spending your time and effort on building a good track record of project

success, rather than attempting to convince the organization to pull a current PMO up to the enterprise level. Although this might seem

like a platitude and generic advice, it isn't. At maturity Level 3, the most important capability a company can have is the ability to deliver

reliable project results. Doing this reliably says that an organization can always count on getting done whatever it decides to do. In an

environment of uncertainty, this is a capability that any company would be happy to have.

Build a Project Capability Office If You Are in the Planned Improvements Quadrant

Many companies have been very successful at riding a strong demand curve (energy) or at exploiting a single "cash cow" product. Our

favorite example of this is the Baseline magazine case study of Mattel and its Barbie doll. (#dv_5_nash_k)

Here are the questions to ask:

Is there a good stream of revenue currently coming into the business?

Has management successfully optimized production and sales capability in the past, and is it committed to continuing to do so?

If the answer to these questions is yes, then it's highly probable that the only enterprise-level organization that will be formed is onecentered on operational excellence and business process improvement, which is generally the right response to market conditions.

Instead of building an EPMO that focuses on portfolio or program management, companies in this quadrant most commonly are

interested in forming what Gartner calls a project capability office (PCO). The primary focus of a PCO is to ensure that the enterprise can

do what projects they choose to do well. The PCO generally focuses on the following:

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Providing a high-level approach to project and program management that can work equally as well in new product development as it

does in marketing and IT.

Capture specific learning (best practices), and make them available to the organization

Provide access to training:

Knowledge-based

On-the-job training

Mentoring

Build and maintain project culture

If You Are in the Survival-Induced Change Quadrant, Focus on Portfolio Management

There are volumes written about the struggle companies have when they are confronted with changes in their markets they are unprepared

to meet. Historically, the life span of the average corporation was assumed to be about 40 years, but, more recently, there is information

that says the average life span is shrinking to something closer to 12 to 14, years depending on the research. (#dv_6_in_the)

Here is the key question to ask for this quadrant:

Is your organization losing money or facing significant reductions in funding?

An EPMO can definitely provide value in this situation, but we strongly recommend that you read "How Economic Conditions Influence

PPM Maturity Level Progression" (http://www.gartner.com/document/code/206429?ref=grbody&refval=1841915) before you begin selling

the EPMO concept too strongly. Many organizations in this situation regress along the maturity curve and don't always instinctively take

the right actions. A client once shared that the very first thing you have to do in these circumstances is launch a "project tourniquet": Stop

the bleeding first, then worry about how to improve your way back to health. Once the immediate actions have been taken, most

organizations become interested in getting better control of their investment portfolios because a well-run project that delivers the wrong

thing is worse than a poorly run project that ultimately delivers something of value. This is where we see the role of the portfolio-centered

EPMO.

Build the EPMO If You Are in the Strategy-Induced Change Quadrant

Organizations in this quadrant are generally focused on market leadership. They've taken seriously the old adage that there is always room

at the top, and the senior management team is committed to leading the company to "great." In this quadrant, there is generally a PMO for

executives to pull up and an organizational leader, with a strong-enough vision of the contribution that an EPMO can make, to ensure that

what gets pushed is what executives want to pull (see "The Enterprise PMO: An Emerging Force in Strategy Realization"

(http://www.gartner.com/document/code/200779?ref=grbody&refval=1841915) ).

Here are the key questions to ask:

How capable is your organization in managing programs?

How capable is your organization in managing change?

If the answer is "good enough to get started," then the formation of an EPMO is generally an organic process. If the answer is "not very,"

then we generally see that organizations need to lean heavily on external partners to help them build the core capabilities required to

function well at this level.

It's All About Readiness

Gartner estimates that only about 20% to 30% of organizations will ever end up forming an EPMO because of both readiness and rightness

issues. That said, understanding where your organization resides in the four quadrants and then tailoring your PPM capabilities to support

the unique needs of that quadrant is always the right thing to do.

Recommended Reading"The Enterprise PMO: An Emerging Force in Strategy Realization" (http://www.gartner.com/document/code/200779?

ref=ggrec&refval=1841915)

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"PMO Best Practice for Maturity Level 3: Meeting the Needs of All Your Stakeholders" (http://www.gartner.com/document/code/201360?


"How Economic Conditions Influence PPM Maturity Level Progression" (http://www.gartner.com/document/code/206429?


Note 1

The High Failure Rates of EPMOs

One of the most common reasons for EPMO failure is the perception that it's some form of a political threat to the official power structureof the organization. Based on interviews with heads of EPMOs that had very short life spans, they dissolved because the director was "too

young and not politically astute enough," and because the director was "developing too large a reach in the organization."

Determining the exact rate of PMO failure is difficult, although certain numbers do offer a way to back into a conclusion. ESI

International's 2009 survey showed that only 32.7% of the PMOs had been in existence longer than three years. The same survey showed

that 30% of the PMOs currently felt their very existence was being called into question. The fact that the job isn't easy and that any misstep

can lead to "being reorganized" should be obvious. See "PMO Best Practice for Maturity Level 3: Meeting the Needs of All Your

Stakeholders" ( http://www.gartner.com/document/code/201360?ref=grbody&refval=1841915) for our advice on adopting servant

leadership as a way to navigate this apparent "Catch-22."

EvidenceGartner received a small number of EPMO inquiries, mainly from organizations at maturity Level 4. The number grew to over 160 calls in

the last 18 months, almost exclusively from maturity Level 2 and 3 organizations.

A 2009 survey from ESI International showed that only 32.7% of the PMOs had been in existence longer tha n three years. The same

survey showed that 30% of the PMOs currently felt their very existence was being called into question.

In his book, "Who Says Elephants Can't Dance?" former IBM president Louis V. Gerstner, Jr., details IBM's recovery and reinvigoration

after nearly collapsing under its own weight.

Love, A. (2011, March 29). "Wal-Mart's Epic Strategy Fail." Bloomberg Businessweek. Retrieved from

www.businessweek.com/managing/content/mar2011/ca20110328_966846.htm(http://www.businessweek.com/managing/content/mar2011/ca20110328_966846.htm) .

Nash, K. (2005, August 4). "Mattel: How Barbie Lost Her Groove." Baseline. Retrieved from www.baselinemag.com/c/a/Projects-

Management/Mattel-How-Barbie-Lost-Her-Groove (http://www.baselinemag.com/c/a/Projects-Management/Mattel-How-Barbie-Lost-

Her-Groove) .

In "The Living Company," author Arie de Geus expands upon the evolving characterization of companies as living entities, rather than

simply economic entities.

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Is Your Organization Ready for an Enterprise PMO