Portfolio Management: How Lowe’s Grows

When Lowe’s developed a new cobranded credit card offering for its customers, CIO Steve Stone knew the project would call for a reconfiguration of the company’s payment acceptance and processing systems. Not as obvious was where Lowe’s would find the necessary internal manpower and skills to complete the project. That is, until Stone turned to Lowe’s enterprise portfolio management (EPM) system for answers. By providing a companywide view of the company’s IT activities, EPM helped Stone identify the necessary resources in other business units and reallocate them to support the North Carolina–based retail giant’s new credit card program.

Using portfolio management to get a better handle on resources such as human capital may seem ambitious, but it’s all part of Lowe’s plan to push the envelope on this mature, but still somewhat underutilized, technology. Rather than simply using portfolio management to prioritize IT initiatives as many companies do, Lowe’s is leveraging EPM to perform business-critical tasks including anticipating labor shortages, planning operations expansions into Canada and gauging the effect of new systems such as self-checkout programs on how IT adds value to the business. Unlike earlier versions, which merely aggregated IT projects, today’s EPM solutions are enabling businesses such as Lowe’s to make both IT and non-IT decisions in accordance with a company’s operating model, strategic direction and growth potential.

“What EPM allowed us to do with regards to [expanding store operations into] Canada is to understand what activities we had and where our resources would be available,” Stone says. “EPM allows us to comparatively look at the value of IT efforts and to look at resource loads to better understand when we can execute a project. It allows us to be more flexible to the business than we’ve ever been before, and that’s something that’s hugely valuable to us.”

The Misuse of Portfolio Management

While Lowe’s is still in the process of fully realizing EPM’s full potential, the company is still a step ahead of many of today’s portfolio management users, according to analysts who track the systems. Although U.S. IT spending is expected to grow 7 percent this year, Info-Tech Research Group says 95 percent of IT groups are not delivering some projects on time or to the full satisfaction of business executives. Many companies have not even taken the first step in making the most of portfolio management; instead they continue to keep track of ongoing projects with Excel spreadsheets—an outdated tool that doesn’t allow for frequent updates or collaborative input.

Then there are those that continue to view portfolio management as a static inventory of approved projects. Rather than giving careful consideration to the impact of technological and corporate fluctuations, these companies simply regard portfolio management as a onetime-only prioritization strategy. “If you look at older approaches to portfolio management, almost all of them stopped once projects were either funded or completed. To me, that was always absurd,” says Robert Handler, a research vice president at Gartner and coauthor of IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technology. Handler says contingencies such as unanticipated maintenance costs and repairs can have a tremendous impact on a project’s expected ROI.

Humble Beginnings

Although determined to take EPM that extra step, Lowe’s initial foray into portfolio management was nothing out of the ordinary. Anxious to revamp Lowe’s approach to IT planning and tracking and derive greater business value from its IT endeavors, Stone turned to portfolio management in July 2001. By managing IT endeavors in the same way a stockholder oversees financial investments, Stone hoped to gain visibility into a murky IT project pipeline and achieve a holistic view of the company’s technological initiatives.

For months, Stone and Stephen Boerst, Lowe’s manager of IT strategy and planning, carefully documented commitments, time lines and resource demands of every IT project in the works, from enterprisewide rollouts to routine hardware upgrades. Following this, they divided projects into five categories: mandatory, maintenance, enhancements, growth and innovation. Within each category, projects were prioritized based on criteria such as ROI, risk and resource requirements. Once prioritized, Stone and Boerst set benchmarks to measure the progress of each project throughout its lifecycle.

While creating a project inventory was a tactical first step, Stone knew that it wouldn’t be enough to truly align IT initiatives with Lowe’s ever-evolving corporate strategy. After all, prior to portfolio management, many of Lowe’s funding decisions were based on superficial factors such as a presenter’s persistence or PowerPoint expertise. “The quality of the presentation drove whether the project was accepted or not. So someone could do a great job presenting an awful project and it would get approved,” says Stone, adding that presentations were delivered only once a year as part of the company’s budgeting process.

Stone also recognized that inching toward EPM meant no longer leaving it up to IT personnel—each acting on behalf of a particular department—to vie for the allocation of corporate resources and funds. To bring about these significant changes in Lowe’s operational procedures, Stone established two groups in late 2001: the Business Solutions Group (BSG) and an IT steering committee.

The Next Step

Today, the BSG is made up of 85 staffers boasting a combination of project management skills, an in-depth knowledge of business processes and a keen understanding of technology and its impact on the bottom line. BSG members, most of whom are IT program and project managers, support all areas of Lowe’s business, from store operations to human resources. They work closely with department heads to align projects with business objectives and to measure the impact a project may have on the company’s ability to carry out other business initiatives. For example, if the HR division wants a new payroll system, it’s up to a BSG member to evaluate such a system’s drain on IT resources, cost requirements and impact on related business processes such as benefits enrollment. The BSG member then works with the department head to build a strong business case and financial justification for the proposed investment. The business sponsor then takes the business case to the IT steering committee for final approval.

Lowe’s IT steering committee includes Lowe’s chief executive officer, Robert Niblock, Stone and six other C-level executives. The committee meets every two months to review detailed project proposals. Decisions as to whether a project should be subsidized, scrapped or simply placed on standby are based on set criteria including a project’s potential ROI, its alignment with corporate objectives, impact on internal processes and potential risks. Following each presentation, the IT steering committee votes on whether a project should be approved. Currently, approximately 85 percent of Lowe’s proposed initiatives fail to receive committee approval.

Using Pacific Edge’s portfolio management software, Lowe’s now generates three portfolio status reports on a weekly basis. The first is a summary report that color-codes the state of Lowe’s IT projects. Progress is measured by whether a project is within budget, on schedule and in keeping with its intended scope. While the first report offers a comprehensive snapshot of project performance, Lowe’s second report outlines a project’s delivery schedule with detailed explanations for changes in delivery dates and analyses of how these changes might affect other processes or projects. Information is based on regular status updates provided by the company’s program and project managers. But it’s the third report that delivers the greatest impact on Lowe’s internal operations by measuring resource loads across the entire company’s IT portfolio. For instance, with a single keystroke, Stone can discover the funds, as well as the number of hours and employees, currently dedicated to a single IT project.

Taking Stock

This application of EPM is beginning to have a significant effect on enterprise-oriented activities such as resource management. Two years ago, Lowe’s decided to make sweeping and immediate changes to the company’s corporate credit program. Any program overhaul is likely to create ripples across the enterprise but previously, it would have been next-to-impossible to pinpoint those areas that might be affected in the process. With the help of Lowe’s resource load report, however, Stone was able to identify a financial enterprise resource planning program and two point-of-sale initiatives that were delivering less value to the corporation than was promised by the reconfigured credit program. As a result, Stone pulled resources from these lower-priority initiatives and reallocated them to help with the retooling of the company’s payment acceptance and processing systems.

Lowe’s also uses its EPM system to assign job descriptions and skill sets to specific projects. By tracking the availability of internal skill sets and matching human capital requirements to new IT initiatives, Stone believes that by early 2006, the company will be able to forecast what particular IT skills are needed to complete a project and whether those skills are represented in the company’s current IT talent pool, thereby driving hiring initiatives. “If we can understand a quarter or two in advance which roles we’re in demand of, we can either hire internally or go to the external markets for those particular roles,” says Boerst.

But Lowe’s is using EPM to drive deeper into the enterprise and to predict the need for non-IT workers as well. The company has started to keep track of its business process experts—employees that mostly reside outside of the IT department but are conversant in technological issues and whose role it is to oversee new project launches. By incorporating business staff into its portfolio of assets, Lowe’s can determine if the company has the necessary personnel in place to handle upcoming projects.

Beyond IT Assets

Lowe’s is using EPM to make non-IT decisions that hold serious implications for the company’s growth and survival. Take, for example, recently announced plans to open six to 10 stores in the Toronto market in 2007. “Portfolio management and the concepts around portfolio management helped us in determining if it’s right for us to look at a Canadian expansion,” says Stone. Long-term plans include the potential for as many as 100 Lowe’s stores in Canada.

By providing a holistic view of the company’s IT projects, Stone says Lowe’s was able to measure an expansion’s impact on available resources. After all, penetrating the northern border means dedicating personnel to the processing of multiple currencies, the introduction of new merchant programs, the deployment of back-office systems and cross-border merchandising projects. Because upgrading systems for multilanguage and multicurrency functionality demands the assistance of internal subject matter experts, Lowe’s ran various scenarios through its EPM system to determine a manageable growth rate for expansion. In the end, the EPM solution illustrated that internal experts would be a “constrained resource” in the coming months—a revelation that Boerst says served as a valuable “reference point” in planning Canadian store expansion.

EPM also played an important role in setting a deployment pace for Lowe’s self-checkout initiative. The company recently completed a pilot project in which Lowe’s installed self-checkout lanes in five of its stores. Additional plans include installing self-checkout facilities in another 50 stores by the end of the year. To determine the impact such an initiative would have on existing resources, Lowe’s again ran various scenarios through its EPM system to determine resource limitations. This time, EPM determined that the deployment of self-checkout technology called for the extensive training of in-store staff. As a result, Boerst says Lowe’s “could only roll out the self-checkout project as fast as store executives could set up their internal training programs.”

Culture Shift

For all the benefits of portfolio management, companies shouldn’t expect to glean immediate results from it. In fact, experts suggest that it can take as long as five years to reach the highest level of business value. This is because one of the greatest challenges companies face is responding to employee resistance. To help drive adoption, Lowe’s integrated portfolio management metrics into performance reviews for the company’s IT project directors and vice presidents. Compiled both midyear and end-of-year, these reviews outline which projects were delivered on time and on budget and include detailed explanations for missed targets.

The company also enlisted the IT consulting services of Capgemini in July 2001. For nearly nine months, a team of third-party consultants helped define Lowe’s new IT operating model and hosted training sessions to familiarize employees with the company’s new IT operating model.

Despite all the hours invested in change management processes, Stone says that virtues such as patience and consistency eventually helped EPM sell itself to employees. For example, in the past, IT project managers would have to fill out paper time reports on ongoing projects—a painstaking process that has since been simplified through the automated EPM system. Business executives have also learned to appreciate EPM’s benefits. By gaining greater visibility into IT resources, Stone says, executives now see the IT resource through the enterprise lens; they see the other efforts that are either under way or being planned.” Better equipped to make “more informed decisions,” these executives are now more likely to receive project approval and obtain the proper services from IT.

Lowe’s still has a long way to go before reaping all it can from EPM. Future plans include tracking the skills and hours of some non-IT employees through the system so that the company can take a broader approach to resource management and gain a clearer view of a project’s overall ROI. And only recently has Lowe’s begun to incorporate recruitment strategies into EPM by predicting the need for business process experts to oversee new project launches. But one thing is for certain: With business growing at a rate of 18 percent per year, EPM is Lowe’s best chance for taking IT and non-IT initiatives in the right direction.