Beyond the matrix

the integrated project-based organization

Abstract

For years now, the project management community has focused on the matrix organization as the way to deal with projects in traditional settings. Issues concerning the use of matrix, like dual authority, have been discussed at length. Since the early 2000's, the PM practice and research conferences have featured papers about the importance of linking the project approach with existing strategic or organizational structures. Solutions have focused on specific elements like portfolio management, the PMO, or enterprise reporting tools. But there has been very little, if any reporting on how mature project-based organizations that have gone beyond the matrix have developed integrated project-based organizational structures. It is crucial for the project management discipline to understand these issues if it wants to really move into the organizational project management (OPM) promoted by the PMI®.

This paper uses the wide-ranging consulting and research experience of the author and others to discuss horizontal and vertical integration issues in project-based organizations and present specific practical solutions to these issues. It identifies tendencies and trends in the development of these new forms of organizations. Based on these, it identifies novel ways of dealing with the inherent tensions found in functional and matrix organizations when they try to adopt a project management approach.

Introduction

Consulting experience at strategic level with many top organizations that have adopted project management as a business mechanism, as well as recent research, have prompted me to look at new emerging forms of project-based organizations (PBO). From these observations, I have drawn a series of conclusions on what mature project-based organizations do that works.

Organizations that adopt project management principles generally make the mistake of focusing on single project management as an organizational approach; this is well known and covered by ample literature and practical experience. For example: Portfolio management and enterprise project tools simply serve to coordinate resources at organizational level and many recent studies have demonstrated that PMOs’ main functions are focused on standardization of processes and resource allocation between projects. On the other hand organizations still complain about the fact that projects do not deliver business benefits and the adoption of program management has only gone some way into solving this problem.

There are basically two main issues to be addressed in this area, which are currently not well managed by organizations:

a) Horizontal integration of projects across the product life-cycle, from formulation of the business strategy to delivery of business benefits.

b) Vertical integration of projects across the project portfolio, to link it to the corporate strategy.

In terms of horizontal integration, Morris & Jamieson (2004) promote a “front-end” approach to project management. Thiry (2004) argues that program management should be used as a strategic decision management process. PMI (2006b) suggests that program management should cover benefits realization. On matters of vertical integration, Hobday (2000) distinguishes six types of organizational forms from functional to project-based; he identifies three types of project organizations beyond the balanced matrix. Pinto and Rouhiainen (2001) have identified the need for project-based organizations to adopt value-chain principles. Many PMO authors have suggested that the PMO must include project governance.

At this time there have been few if any attempts to integrate all these aspects of the structure of project-based organizations; it is the aim of this paper to do so.

The Project-Based Organization

As the application of project management is spreading in organizations, there is a need to describe a richer variety of project-based organizational models to accommodate various situations and address the issues of compartmentalization versus integration in project-based organizations (PBOs). PBOs refer to organizations, or departments within organizations, that conduct most of their internal and external activities as projects (Hobday, 2000; Sydow, Lindqvist & DeFillipi, 2004) and, PBOs are receiving increased consideration as an emerging organizational form (DeFillippi and Arthur 1998; Gann and Salter 2000; Keegan and Turner 2002).

As illustrated in Exhibit 1 below, here are typically three forms of activities undertaken in PBOs:

a) Ongoing actions, like: Sales and Services, Operations and Maintenance, Pure Research, Production/Manufacturing, Administration;

b) Incremental actions, like: HR Management, IT Management, Quality Management, Finance, Marketing & Research;

c) Change actions, like: Projects, Development/Design, Prototyping/Testing, Organizational Change, Building/Construction.

PBO Typical Activities

Exhibit 1: PBO Typical Activities

The Matrix Organization

Typically, in a matrix organization, ongoing and incremental actions are part of a business domain, or function and dealt with within this domain or function, change actions are either cross-functional, if they involve more than one domain, or are significant from a corporate point of view. If the matrix is weak, project managers are part of a domain, if the matrix is strong, there is usually a project management function to which they belong. In many organizations this project management function is held by IT/IS because of their cross-functional involvement in the whole organization; in others an “independent” PMO (Project/Program Management Office) is created to undertake this function.

It is well known that this “project” function clashes with traditional organizational structures and functions. A well documented case from a large Australian financial services organization has been reported recently (Dovey & Fenech, in press) where a PMO's role was extended to “include a more proactive and strategic role in the Company's project selection decisions […] with the purpose of ensuring an explicit and transparent basis for project selection and investment decisions”, and which “despite [its] success, after six months of operation the Company announced the retrenchment of the PMO Manager and the disbanding of the PMO on the grounds of ‘reducing a management overhead’. […] Subsequently, over an eighteen-month period, the Company failed to deliver a $15M program of work aimed at re-engineering its core business applications and processes. of a very successful PMO that was terminated.” Following this failure and the replacement of the CEO, the PMO was reinitiated through a new initiative that met initial resistance from project managers, who saw it as additional red tape, but eventually got their support. The authors report that “resistance from functional managers was much slower to arise; however, when it did arise it effectively led to the termination of the Program […] as they began to understand the implications of the Program for their personal and functional power bases, they increasingly reverted to covert and sectarian strategies -recreating an atmosphere of secrecy and mistrust in the process.” Resistance went as far as encouraging their staff to refuse to cooperate and unilaterally re-allocating project resources under their authority; personal attacks were made on the PMO Manager and “training sessions delivered by the PMO to functional and line managers were openly sabotaged”. In the end, “when faced with an open rebellion from functional managers, the executive management of the Company very quickly chose political harmony over business transformation and superior results.” This real life situation is just an example of possible conflicts between project and functional areas of the business and, although extreme, it is not an uncommon situation as many PMO managers can confirm.

In two other example from my own experience, a large UK Government and a large public European organization introduced project management as a “way of doing business” in the mid-nineties. In both organizations, some more progressive areas of the business readily adopted project management whereas other areas were so resistant that they had to wait until some of the functional managers went into retirement to actually be able to implement PM as the main activity process. In both organizations, there was a powerful support from the Chairman (CEO) and a clear mandate from the sponsors. Albeit this strong support and commitment, the shift from functional to matrix and then to project-based took between 5 to 8 years to complete.

The main problem of matrix organizations is the lack of clear lines of authority and the conflict this situation creates for both the resources and top management. Resources have no clear accountability and reporting structures and top management are always faced with the dilemma of having to choose between giving power to the project management function or the line managers, which usually ends in power struggles as described above. Often, even when a strong matrix approach is adopted, functional managers will fight for the power they feel is taken away from them and this is only natural. So, when PMOs are established within a matrix organization and that the PMO exercises power traditionally devoted to business managers, one can only imagine the reaction of those business managers. As project management is gaining more and more ground in organizations, this problem will only be exacerbated.

Integration of PBOs

It is obvious from the examples above and from other research and experience that the current organizational management context is still dominated by mechanistic, control-based organizational models (O'Sullivan, 2000; Tsoukas & Chia, 2002). As a consequence, most current PBO structures are mechanistic in nature; their management approach is based on the extension of tools developed for the management of single projects and is grounded in linear relationships (Moore, 2000; Richards, 2001). A mechanistic style of management tends to keep organizations close to the static state because it minimizes interactions among its components. Burns and Stalker (1961) have already argued that mechanistic management is appropriate when goals are clear and little uncertainty exists in the prevailing environment but that more organic forms are better suited to more turbulent environments.

In today's context of change and with the advent of project management as a dominant form of organizational management, one could say that the organizational context is becoming more turbulent than it was even ten years ago. But, even within these turbulent environments, recent project management literature still promotes the use of PMO models based on the extension of project management tools and grounded in linear relationships (Crawford, 2001; EDS, 2004; Kendall & Rollins, 2003; Kwak & Dai, 2000). These latter views are exemplified in Exhibit 2, which displays a generic model, similar to those promoted by the above authors. All these models are very hierarchical in nature and foster compartmentalisation and vertical control.

Typical mechanistic PBO model as described in recent PM literature

Exhibit 2: Typical mechanistic PBO model as described in recent PM literature

Three recent empirical studies (Bresnen Goussevskaia & Swan, 2004; Lindkvist, 2004; Dovey & Fenech, 2006) have shown that traditional organizations that adopt a project management approach often face a dichotomy between the flexibility and dynamism of the project approach on the one hand and the desire of firms’ functional and strategic stakeholders to exercise control at organizational level on the other. Additionally, these studies and others have demonstrated that, when set in traditional structures, project-based organizations (PBOs) display a number of weaknesses, especially concerning coordination between strategy and projects and the difficulty to create cross-functional management teams.

Summary

The management of single projects is well documented and its practice well understood in principle (though actual results often still disappoint). Probably because of this, most PBOs still view projects as singular ventures, which creates many integration issues. Recently authors have argued that projects need managing within a wider context (Morris & Pinto, 2004). For example: the need to link strategy to projects and vice-versa (Morris & Jamieson, 2004); or the focus on social sciences theories as opposed to engineering or systems analysis (Winch, 2004); or still, the differences between management of human resource in traditional and project-oriented organizations (Huemann, Turner & Keegan, 2004).

A particular issue that is poorly understood is the interaction between portfolio management, the PMO, and programs to create real added value for the organization. Practice suggests that portfolio management typically centers project selection on resource allocation and less on fit with the corporate strategy (Meredith & Mantel, 2005); program management is mostly associated with multi-project management – realizing business benefits and inter-project learning (Thiry, 2004) is still a struggle; and PMOs are largely used to collate project data and issue processes and procedures (BIA, 2005; Hobbs & Aubry, 2005), rather than as a governance structure.

New forms of Project-Based Organizations

Most current research on organizational project management still concentrates on singular aspects of the project approach. Many of the integration issues outlined above are just starting to produce empirical evidence or theoretical debates. So, based on few reported cases and long-term experience and practice, I would argue that better integration in PBOs must pass through a coherent project governance approach, which could be summarized by addressing three major issues:

  1. Horizontal integration of projects across the product life-cycle, from formulation of the business strategy to delivery of business benefits.
  2. Vertical integration of projects across the project portfolio, to link it to the corporate strategy.
  3. Integrative project governance structures to create and deliver value.

Most strategy books describe two levels of strategy: Corporate and Business. De Wit & Meyer (2004) describe Corporate Level strategy as the organizational level group strategy that guides multiple business units and Business Level strategy as the strategy which coordinates different operating units within a business unit. For the purpose of this paper, corporate strategies will be considered medium or long-term forecasts of the organization's future position. Their implementation is usually a top-down process and regards the high level direction of the corporation. In PBOs, portfolio management should foster vertical integration between programs and projects to align with corporate strategy and effectively create value for the business, not just be used to allocate resources in the most efficient way.

There are two ways to develop business strategies: a) each unit competes with each other for the same resources, which, alas, is the case in most organizations because of a dominant mechanistic paradigm; or b) strong and meaningful interrelationships are created between units, which would be the case in an organization that privileges horizontality and organic interactions. Business units—or domains—, because they are close to the action, will best be able to deal with turbulent environments by developing emergent strategies. The advantage of a horizontally integrated project management from the business unit to the program and the delivery of value versus a product delivery project management approach should be obvious.

As graphically displayed in Exhibit 3, a well integrated PBO will display strong interrelationships between its projects and both its business and corporate strategies; in such an organization project managers would be expected to be appointed in senior management roles, or senior managers would be expected to view project management as an integrative process to deliver value to the business. As outlined before, a less integrated PBO would reveal a focus on single projects and more on an approach to multi-project management that focuses on resource allocation and data gathering; project managers will be expected to play a predominantly product delivery role.

Vertical and Horizontal Integration in PBOs

Exhibit 3: Vertical and Horizontal Integration in PBOs

Currently, there are two ways organizations have achieved this type of integration. One is to separate the ongoing and incremental actions from the programs and projects by creating “business domains”, these business domains are responsible for developing strategic concepts, program proposals and fostering specialist skills; the change actions are undertaken under the umbrella of corporate “programs” that are responsible for analyzing program proposals and implementing strategic decisions, whether they come from the corporate or the business level; finally at corporate level, the strategy development unit will ensure strategic integrity and central support for both the domains and programs. No project or program should be launched without a clear identified need from corporate or business stakeholders. This is the model used by Eurocontrol, the European Air Traffic Management body (http://www.eurocontrol.int/eatm/public/subsite_homepage/homepage.html). With this model, customer services can either be independent or under the authority of domains or programs. It is when they are supervised by the programs that they are best integrated horizontally to deliver value.

The second type of organization that is often observed is when a powerful project-based section of the business takes charge of all the projects across the organization. This is often the case with powerful IT departments that are project-oriented and work on cross-organizational projects that tie in the business units. This second option is not as easy to implement because, again, it is subjected to power struggles between the “project” function and the other business units. It works best when the “project unit” provides a clear support service to the “business-as-usual” units, in the same way as finance or human resources, for example. The project unit then takes care of incremental actions as well as of the change actions. In this type of organization, it is crucial to have a clear corporate strategy that is well translated at tactical (business) level and each project and program should be submitted to a consistent and transparent selection process. In this case, effective portfolio management is the key to success. Each project or program should be clearly linked to corporate or business critical success factors. This is the model presented by Gozzard and Knapp (2006) for National Australia Bank (NAB), for example.

In both these models, there is a strong project governance aspect, which is directly linked to either, stakeholder needs and expectations or corporate/shareholder benefits. Both aim to create and deliver value for the business and for its significant stakeholders.

Summary

Both these models are consistent with the model described in the new PMI© Standard for Portfolio Management (PMI, 2006a, Figure 1-2, p.7). In the first case, the emphasis is more on horizontal integration at business level and responsiveness of the organization—a stakeholder perspective—, whereas in the second case the focus is more on vertical integration and corporate stability—a shareholder perspective. The first model is probably more appropriate for turbulent environments, whereas the second will be more appropriate for stable environments.

Models of Relationships in Integrated PBOs: Turbulent and Stable environments (Adapted from Fig. 1.2, p.7 of “The Standard for Portfolio Management”, PMI, 2006)

Exhibit 4: Models of Relationships in Integrated PBOs: Turbulent and Stable environments (Adapted from Fig. 1.2, p.7 of “The Standard for Portfolio Management”, PMI, 2006)

Both types of organizations have evolved from the matrix in a way that has clarified the roles of the different actors and focuses on value delivery rather than product delivery. Projects are considered as a means to an end and, in that sense, are seen holistically within the business rather than as single ventures. In successful organizations, program and project managers can be empowered to deliver value because the project selection process is transparent and consistent and not subjected to power struggles at the middle management level.

Conclusions

As project managers are asked to take a more strategic focus and, as organizational managers are looking for better strategy delivery results, both with mitigated success, well integrated PBOs could be a possible answer provided their structures provide horizontal integration from business strategy to operational benefits and vertical integration between corporate objectives and the prioritized portfolio of projects. It is also very likely that the adoption of an integrated wide-scale project approach will influence the way strategies are developed and governance and structures of organizations evolve.

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This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

© 2006, Michel Thiry
Originally published as a part of 2006 PMI Global Congress Proceedings – Seattle Washington

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