October 16, 2009

Making The Case For The Next-Generation PMO

by Margo Visitacion for Application Development & Program Management Professionals

Making Leaders Successful Every Day

For Application Development & Program Management Professionals

broader Visibility And Flexible Frameworks To Tackle More Work Without Killing The budget
by Margo Visitacion with Mary Gerush and Adam Knoll

Making The Case For The Next-Generation PMO

October 16, 2009

ExECuT i V E S u M MA ry
There isnt a business case for the old school project management office (PMO): Weve tried it, and quite often it didnt work. Todays PMOs are under pressure to be business process change agents that demonstrate value without generating revenue. PMOs can be a key differentiator, and the nextgeneration PMO accomplishes this by creating a flexible framework that fosters the investment process, managing multiple types of work, adopting Lean techniques, and providing tools and support that adapt well to increasingly Agile environments. In todays business world, if youre planning to create a new PMO, think pragmatically and build a business case for the new project management office.

TAbl E O F CO N TE NTS
2 Todays PMO Its Becoming Obsolete 3 The Next-Generation PMO You Need It What Does The Next-Generation PMO look like? Organizational roles in Next-Generation PMOs Flexible, lean Frameworks Are Crucial 8 Is Your Company Ready For A NextGeneration PMO? Organizational Models Are important Preparation is Critical
rECOMMENDATiONS

N OT E S & rE S O u rCE S
Forrester interviewed 15 vendor and user companies.

Related Research Documents Define, Hire, And Develop your Next-Generation Project Managers October 15, 2009
iT Demand Management And The PMO October 10, 2008 What Successful Organizations Know About Project Management May 26, 2006

12 How To Build A Next-Generation PMO

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

TODAYs PMO ITs BeCOMING OBsOleTe Projects arent easy, and managing them successfully requires a balanced combination of art and science. Enter the project management office, which historically has focused on delivering projects that grow revenues and save costs for organizations. Project management offices have concentrated on finite sets of activities related to new development and projects important to meeting strategic business objectives. Organizations committed to project management excellence in the form of repeatable processes, useful tools, and organizational support have found that meeting critical objectives is well within their capabilities in large part because their PMOs have provided critical support. But this applies to only the 34% of IT investments that make up new development (versus the 66% that make up operations and maintenance).1 In todays challenging environment, applying a PMOs discipline and enabling visibility into only a one-third of total IT spending isnt enough. And PMOs are missing the boat, because:

The PMOs narrow focus misses opportunities. A PMOs emphasis on project and portfolio

management provides great insight into new investments, but this overemphasis on new investments is myopic, leaving opportunities to optimize operational and maintenance spending under the radar. With business involvement in technology spend growing, insight into onethird of IT spend isnt enough.

IT lacks visibility into the majority of organizational spend. Once project deliverables are

deployed, granular tracking of issues diminishes, and organizations lump most change requests into a maintenance or operations bucket. Organizations may try to capture maintenance spend, but they are doing so as a historical exercise, which is very time consuming and difficult to replicate.2

Business is demanding greater transparency; without it, it will begin to find its own solutions.
Todays economy forces CIOs to demonstrate greater value, and the lack of information around maintenance and support forces IT management into a contentious relationship with business partners. When business and IT cannot communicate about investment and value, the business starts looking elsewhere; for example, it may decide to investigate software-as-a-service providers as low-risk alternatives for specific business solutions.3

Cost centers are hard to justify. In conversations with PMO leaders, a common theme

immerged: Project success is more common with a PMO in place. But because PMOs are not seen as direct contributors to revenue generation, they are often under duress to continually prove their value. If an organization doesnt make value realization a regular part of its process, keeping the PMO in existence is difficult to justify long term; low-performing PMOs tend to last only approximately 3.5 years.4

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

THe NexT-GeNeRATION PMO YOu NeeD IT Organizations today demand greater visibility into IT spend and value. Companies realize that the disciplines that apply to project portfolio management can also help them utilize resources more effectively.5 The next-generation PMO takes delivery to the next level, shifting from an inwardly facing PMO one that concerns itself primarily with a narrow range of projects to a constituent or outwardly focused PMO: one that applies the disciplines of project management in a lightweight framework that supports broader demand and delivery processes and methods for delivering a wider range of work more efficiently.6 The next-generation PMO is emerging because:

Organizations continue to become more project-focused. When times were good, benefits

realization was a spotty exercise at best. In todays tight economic times, funding requirements continue to grow more stringent, and projects need to the realize benefits to obtain funding for new investments. As a result, companies are seeing that taking a more project-centric approach to a broader range of activities enables them to prove an undertakings potential before providing funding as well as to set up the foundations for measurement after deployment. The PMO is the natural location for capturing and measuring this information. Projects, as part of a larger portfolio, have relationships and dependencies that organizations must manage and measure to achieve broader strategic goals; therefore, the barriers between IT and the business must fall away to enable the PMO to manage and measure this information.7

Its beneficial to extend demand processes for project management to other work types. To

obtain extended visibility, companies are applying the rigor they employ with new investments and projects to some maintenance and operational requests. These companies are putting proactive or planned releases and upgrades through the same levels of review for cost, value, and risk as they would for new investments. Our executive management has lowered the threshold on assessing demand requests. Before, it was either a project or a request for maintenance and enhancements to existing systems and applications. Now, anything over a certain dollar threshold requires analysis and a value justification. They want to see the impact of every request for funding. (IT director, North American university)

Accidental project managers require increased assistance from the PMO. With

organizations taking a project-based approach to more work, a new role is popping up in organizations: the accidental project manager, who is a person who has been assigned an initiative but lacks project management expertise and experience. Time and budgetary constraints prevent organizations from providing formal training for these individuals, so PMOs must create templates and tools that assist these temporary project managers in successfully managing projects.

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

Because weve had success with the tools that weve created for our [IT] projects, weve had a lot of demand for help, and as a result, weve started to extend those tools to the folks on the business side who occasionally manage projects. It provides them with enough guidance to manage projects, and it gives us consistent measures. (PMO director, healthcare company) What Does The Next-Generation PMO look like? Transparency is the name of the game, and the reach of the PMO now extends beyond just a single business unit or IT organization. PMOs now come in multiple flavors and sizes, and they more broadly influence how organizations make the connection between strategy and execution (see Figure 1). The next-generation PMO provides expanded support by leveraging traditional practices to provide processes and tools to stakeholders who are not familiar with project-based practices. The nextgeneration PMO benefits organizations by:

Implementing new practices that take planning to a more strategic level. The next-generation
PMO provides support to senior management and C-level executives by applying business case demand expertise to planning and reporting processes. By leveraging tools that provide data reporting capabilities and portfolio and capacity forecasting processes, PMOs can provide executive management with insight into the impact of operational requirements.

Removing the emphasis on traditional methodologies. To provide the extended transparency

management requires, the PMO removes the blinders as people ask when is a project a project? It applies techniques and practices that can support a multitude of activities. This includes extending appropriate training for the casual project manager as well as incorporating methodologies such as Agile or Lean to focus on delivery over restrictive methodologies.8

There was no pressure from development to leverage Agile. We [the PMO] actually lobbied them [development] to start using Agile methodologies for our projects in IT and have had great success with it. We have a broader choice now in how we manage projects, and it works well for us. (PMO director, North American insurance company)

Reemphasizing IT-business alignment through planning and demand management. The

strategic importance of aligning demand requires alignment not just to business objectives and IT strategy but also to enterprise architecture standards. The next-generation PMOs increasing involvement with demand management extends to analyzing requests for work and resources and aligning them with the four key management functions of IT: demand management, service management, portfolio management, and vendor management.9

Using processes such as consolidating demand to keep work from sneaking in under the

radar. Either organizing work in a more project-based way to require more rigor or more efficiently considering everything as work and putting it all through a gateway and calling for

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

a baseline of information to approve or reject work requests enables organizations to better capture the true demand coming into IT. Coupling that with portfolio views and capture of actual work provides IT leaders with a much more realistic view of IT costs.10 According to the vice president of IT at one eRetailer: Our executive management wants to see not just investment spend and demand but also operational spend and demand. Consolidating demand and capturing the actual effort has opened their eyes to how much is being done and how much it costs.
Figure 1 The Next-Generation PMO Provides Support For Strategic And Practical Concerns
Business New strategic planning processes IT

New strategic processes Business case design funding study Value realization reporting Enterprise architecture PMO alignment Program management traditional Enterprise portfolio practices Strategic management management Formal Methodology Capacity planning training Resource Portfolio forecasting reporting New planning and execution processes Informal training Frameworks for all projects Funding and business case design Internal consulting Metrics New tactical capture Progress processes reporting Planned service demand Tools Processing demand requests Planned operational demand Planned maintenance demand

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Source: Forrester Research, Inc.

Organizational Roles In Next-Generation PMOs Structurally, the new PMO isnt radically different from todays PMO. The roles are similar but now no longer focus solely on planning and executing IT projects. The next-generation PMO extends its influence to include business stakeholders as well. Within the next-generation PMO (see Figure 2):

The PMO director sets the strategy for methodology. In the traditional PMO, the director sets
project and portfolio management strategies for the organization. In the next-generation PMO, the director also leads work and demand process development for the portfolio(s) she manages. She directs development and implementation of training for both formal and occasional project managers. Finally, she must also direct the change control process, as it touches more stakeholders in the next-generation PMO than it would in an inwardly focused PMO that provides support only to projects.

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

The portfolio manager creates and manages various portfolios based on strategic objectives.

Strategic and operational objectives determine portfolios creation and reporting. Portfolio managers work with the appropriate stakeholders to build the portfolios and perform analysis of options and impacts as demand shifts.

Financial managers report portfolio progress against plan. Depending on organizational size,
the portfolio manager may also perform this role. The financial manager develops the project cost and budget management methodology, captures financials at the portfolio level, and tracks variances as part of the change control process.

Figure 2 The roles in The Next-Generation PMO

Role Director of PMO Responsibilities Direct project and portfolio strategy for the organization Direct work and demand methodology for the portfolio(s) Direct development and implementation of training Direct change control process Develop project cost and budget management methodology Capture nancials at the portfolio level Track variances and part of the change control process

Financial manager(s)

Administration Manage portfolios, including resource forecasting at the portfolio level Handle reporting Facilitate project initiation and governance or steering committee meetings Portfolio managers Manage portfolios of projects and the relationships with project managers for cross-LOB or enterprise projects Track project performance and project costs Can direct training for the project organization Manage tools and handle reporting Program reporting as needed Handle resource repository
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Program manager(s)

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Flexible, lean Frameworks Are Crucial The most visible difference between traditional and next-generation PMOs is that next-generation PMOs operate based on the understanding that there is no one best way to do things and that strict adherence to a monolithic framework is the fastest way to become a bottleneck, not a change agent. Next-generation PMOs exist to facilitate and to remove barriers, not to drown their stakeholders in methodology (see Figure 3). When operating a next-generation PMO, its important to:

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Making The Case For The Next-Generation PMO

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Leverage expertise and historical data to build a pragmatic framework. Processes and

frameworks need a sliding scale when it comes to rigor. Maintenance and operational or service requests often turn around requirements that are much shorter than those for new projects; therefore, its important to emphasize gathering just enough information and providing just enough guidance to deliver the different types of work. Yes, we have to provide support for greater demand, but we cant make everything fit into a project framework. Weve tackled this by having different roles to manage work. We have project administrators who handle work requests that are 500 hours or less; they may be managing several of these types of activities at once, but these are for break/fix, maintenance, or service requests that dont require the rigor a larger project does. (IT director, financial services organization)

Realize that governance does not mean overwhelm them with paperwork and templates.

The next-generation PMO provides useful guidance and methodology delivered in a way that allows project teams to focus on delivery, not forms. While certain policies, such as those regarding variance metrics, customer satisfaction, cost, and resource constraints, are necessary, the PMO cannot dictate every move a project team makes. The PMO should develop useful, delivery-focused processes and tools that provide guidance; its focus should be on removing barriers and upholding transparency.11

Focus on the macro level and let the project managers sweat the small stuff. PMOs must

let project managers do what they do best: manage projects. Portfolio managers may own the portfolio and part of the relationship with the project sponsors, but the project managers own the delivery of the project. Next-generation PMOs focus on relationships and dependencies at the portfolio level and let the project manager select how he manages the project and the steps necessary for the team to be successful. One PMO director at a global financial services company recounted: We have learned the hard way that too much methodology is as bad as no methodology at all. We learned that once project managers have some experience and adequate training, [we should] let them go and manage the project.

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Making The Case For The Next-Generation PMO

For Application Development & Program Management Professionals

Figure 3 The Next-Generation PMO Framework

PMO framework Demand Work type Program Project Operational Maintenance Service Governance Portfolio alignment Enterprise architecture alignment Process alignment Communication strategies Risk measures PMO presence Guidance/consulting Feedback loops Metric guidance Tools Process guidelines Tool templates Communication strategies Risk measures

Communities of practices
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Is YOuR COMPANY ReADY FOR A NexT-GeNeRATION PMO? One of the most telling ways to know if your organization is ready for a next-generation PMO is to evaluate its project management maturity level. If your organization doesnt have dedicated project managers or they are inwardly focused, odds are youre not ready for the next-generation PMO. If processes are poorly defined or hinge on tribal knowledge, youre not there yet, but you can begin to put the processes in place. Organizational Models Are Important Companies without a PMO have to start somewhere. For those that have a PMO in place, it is time to look outward at serving the enterprise rather than focusing on specific duties and functions. Getting to the point where you can start building a next-generation PMO is evolutionary: You need to start with standardization and then expand your model as maturity and commitment grow (see Figure 4). Each PMO organizational model has both benefits and dangers to avoid:

Centralized PMOs focus on standards and building foundations. The word centralized is a

bit of a misnomer because these PMOs are usually centralized in one department or division of an organization and tend to be the most inward-looking of the PMOs. They are good for immature

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Making The Case For The Next-Generation PMO

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organizations looking to get started with a PMO because they are the fastest way to implement standards and kick off training. The danger, however, is that they can become monolithic and slow moving. If the organizations abilities outpace those of the PMO, the PMO can become obsolete.

Federated PMOs take the disciplines of the PMO to the next level. Once project and portfolio
standards are in place and those practices and disciplines are commonly used, an organization can adopt more-mature practices. The federated PMO organization is composed of a strong central PMO and smaller PMOs that reside within specific lines of business (LOBs). Those smaller PMOs are dedicated to managing projects related to the individual lines of business. Federated PMO organizations enable organizations to become more agile in delivering what the business needs while retaining key best practices by maintaining a strong relationship with the centralized enterprise PMO. Next-generation practices can find a home here, provided that the LOB PMOs have a healthy level of autonomy.

Matrixed PMOs are autonomous yet disciplined. These PMOs are similar in structure to a

federated PMO; however, they are more loosely coupled. Matrixed PMOs work best in mature, project-based organizations where a portfolio approach is the norm and work is routinely organized into releases. Next-generation PMOs can flourish in this environment, as matrixed PMOs tend to promote autonomy and focus on strategic reporting.

Latticed PMOs promote autonomy and agility but require the greatest discipline. In The

Future of Management, Gary Hamel talks about lattice organizations, which are productfocused, innovation-driven organizations where traditional hierarchies are obsolete. Latticed PMOs, while rare, are the ultimate in autonomous organizations: They create and implement the best processes to deliver a set of products and services to the organization. To the untrained eye, latticed PMOs can appear completely distributed but in reality are focused on organizational strategy and innovation.12

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Figure 4 Organizational Models For PMOs

PMO type Characteristics Dangers Isolated from LOB Monolithic structures can be seen as bureaucratic. Lacks agility Analysis paralysis and slow to drive process changes into the LOBs

Centralized Establishment of process is faster. Visibility is faster because of the centralized process. Good for organizations that are immature, provided that the PMO is centralized in one area (e.g., IT) Establishes visibility into project management as a business process Federated Establishes closer relationships with LOBs Visibility is still fast because of centralized drivers. Establishment of process is still fast, though not as fast as in a centralized PMO. Clear establishment of a project-based organization Matrixed Establishes the closest relationships with LOBs Works best in a mature, project-based organization Agile processes are present and used frequently. Often product-driven

Isolation from LOB less than the centralized model, but the PMO in this model is somewhat separated from the LOB. Less agile than Matrix but more than centralized Tools play a critical role; no tooling means compromised visibility A strong matrix relationship is critical; without it, the EPMO can be reduced to a gurehead and seen as administrative. Tools play a critical role; no tooling means compromised visibility.

Latticed There is an EPMO in place to establish Without mature and highly supported governance and manage reporting, but project management practices in place, there are few hierarchies in place. This chaos reigns. model looks almost decentralized. Executive management must support The PMO is completely aligned with project-based organizations. the LOB and involved with technology driven by both LOB IT and business. Commitment to disciplined, Lean, and Agile approaches but exible regarding other options
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Preparation Is Critical Extending the role of the PMO will require gradual but significant changes within IT and business organizations. Companies ready to take the next steps must:

Staff the PMO with experienced, open-minded individuals committed to the team concept.

Ask anyone who has ever worked for a successful PMO about the difference between that PMO and an unsuccessful one, and they are likely to respond that the key success factor was having

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the right people with the right attitude and the experience to drive change. PMO leaders have to play multiple roles in selling and running a thriving organization: Leaders are part teacher, part parent, part cheerleader, and part principal. However, they are not part traffic cop or dictator. Successful PMO leaders teach the benefits of portfolio-driven delivery, collaborative project management, and strong team dynamics. The first thing I did was approach the quality assurance and business analysts to get them on board with what we needed to do be successful . . . We developed processes to help trim away what wasnt necessary and ultimately provided fast tracks to help project teams deliver projects faster. We had a goal to show value in 18 months max, and we really wanted to show it in 12. Our business side used to avoid the PMO and go to the IT partners themselves; now they come to us because they know we can deliver it fast and deliver it right. (PMO director, global auto rental company)

Set expectations about the next-generation PMOs role in the organization. Companies

should expect some resistance to the PMOs expanded footprint, especially in terms of demand and resource management. It is not unusual for departmental managers to interpret this as a loss of control in determining their employees work. Executives and the PMO leadership must communicate that by providing greater visibility into the process, managers are actually gaining additional control in determining what should be worked on and how their budgets are being directed.

Provide role-appropriate training for stakeholders, especially on the business side. Part

of the transition from traditional to next-generation PMOs includes training to teach project managers and stakeholders alike to think of the PMO as a strategic support office for continual delivery. This means that more stakeholders must get involved with training ranging from formal and informal project training, stakeholder responsibilities, and self-team management to tools training to enable more-efficient collaboration and project information analysis.

Prepare for continual communication. Sustained support for transitioning to more-Agile

PMO practices necessitates continual information sharing. Gather feedback about what works and doesnt work in current practices as well as feedback about the recent changes. Offer education and status sessions frequently so that stakeholders and sponsors see the transitions context and changes impact. Reporting portfolio status, demand, resources forecasts, and utilization as well as process improvement metrics to the appropriate roles in the organization removes the mystery around how the PMO supports the organization.

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r E C O M M E N D AT i O N S

HOW TO BuIlD A NexT-GeNeRATION PMO

building a next-generation PMO doesnt require an organization to abandon everything that has worked for it in the past, but it does require taking a new look at what the PMO can do to promote efficiency and innovation. To build a next-generation PMO, organizations must:

Build in flexibility by keeping whats necessary and stripping away whats not. This
applies to project management first, as a foundation, and then to other forms of work. Flexibility implies development of a sliding scale for rigor in assessing different work types, practices that are adaptable, and the opportunity to select different approaches.

lower the threshold on what constitutes a project and how you measure a project. but
do not raise the bar on all aspects of assessment and management rigor. requiring greater visibility into demand and cost capture will provide necessary insight into actual spend, but organizations must be careful not to create barriers by demanding too granular a view.

Open the door to broader work types by addressing the accidental project manager.
Organizations routinely hand projects to resources who arent formally trained. The fastest way to drive adoption of project management disciplines is to provide support to those resources, offering guidance without being rigid and coaching without unnecessary rigor. Provide tools such as collaboration tools that can act as lightweight project management tools, templates, and training that occasional project managers can use even if they dont have formal training or certification.

No PMO? start now. Already have one? Find the PMO model to take you to the next
level. Organizations must realize that every type of work that they perform has an impact on business strategy and ultimately on projects needed to reach strategic objectives. leverage PMO disciplines to capture demand and resource data for all work so your organization can realistically analyze the performance of both casual and formal projects. This enables the PMO to assess performance and take the necessary steps to provide guidance and training. As practices mature, having this data will support the decision to move to a more distributed model to support lOb projects while allowing iT to provide the right mix of new delivery and support to deliver requisite business value.

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eNDNOTes
1

Forrester uses the following company size segmentations within the SMB market: very small business (2 to 5 employees), small business (6 to 99 employees), medium-size business (100 to 999 employees), mediumsmall business (100 to 499 employees), and medium-large business (500 to 999 employees). Source: Enterprise And SMB Software Survey, North America And Europe, Q4 2008. Capturing total spend is a difficult prospect, and if its done without implementing the right practices for repeated capture and measurement, it becomes an exercise in a vacuum. To put the right practices in place, see the September 20, 2007, IT MOOSE Management 20 Best Practices report. Business is pushing to have greater involvement in technology investments. It wants lower-cost solutions, lower risk, and greater control. IT has to keep up or fall behind. See the July 17, 2009, Priorities Shift As Business Grip On Technology Tightens report. Low-performing PMOs tend to have less executive support, lack steering committee support, and last only approximately 3.5 years before being disbanded. Source: The State of the PMO 2007, 2008, The Center for Business Practices, 2007. Expanding portfolio views and consolidating demand enables organizations to understand and control spending and resource utilization, placing resources where they will deliver the most value to the business. See the January 14, 2009, Four Steps To Optimize Your Application And Project Portfolios In Volatile Economic Times report. Business-focused PMOs take a broader approach to managing projects that span the requirements of a business organization. Source: Mark Price Perry, Business Driven PMO Setup, J Ross Publishing, 2009. Companies are accelerating their requirements for funding but now must also include dependency management and benefits realization as part of their measurement process. Taking a program management approach that plans and accounts for the relationships among multiple projects in pursuit of corporate goals is a critical step in that process. See the April 30, 2009, Programs, Not Projects, Deliver Business Value report. A successful project management framework takes the practices from multiple methodologies and strips away what is unnecessary. Strict adherence to one set of rules prevents managers from adapting to situations that may require broader thinking. See the January 22, 2009, PMBOK And Agile: Friends Or Foes? report. As IT continues to move forward to be part of the integral business technology process, IT is addressing next-generation concerns. Along with the PMO and the project manager, IT as a whole is moving to the next generation which also means that enterprise architecture has to integrate its methods more efficiently. See the June 30, 2009, Next-Generation IT Requires Next-Generation EA report. By focusing transparency on just demand for new projects and systems and then lumping everything else into the operational or maintenance bucket, IT organizations miss opportunities to optimize their portfolios to gain the most value. See the January 14, 2009, Four Steps To Optimize Your Application And Project Portfolios In Volatile Economic Times report.

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Project managers who are forced to use templates that have little meaning to the situational reality of the project they are working on will be less productive, their team will be frustrated, and their project will become challenged. Finding situationally appropriate templates enables teams to work efficiently with little overhead. See the March 20, 2009, Are Your Project Teams Living In Template Hell? report. Management by innovation requires that organizations abandon preconceived notions of management and bureaucracy to focus on removing barriers that prevent organizations from trying new practices that can help them get ahead. Source: Gary Hamel and Bill Breen, The Future of Management, Harvard Business School Publishing, 2007.

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Making leaders Successful Every Day

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