Cultural and logistic challenges of integrating project management best practices into a global organization
Imagine working for an international company with total sales of 1.8 billion Euro, 10,500 employees, 35 production units, 20 Research and Development Centers, 100 subsidiaries in 50 countries, and sales representation in an additional 45 countries. The task assigned to you is to establish a single global project management organization that utilizes best practice project management techniques to implement a significant portion of the company's customer orders. The objective of this major change initiative is to improve internal and external customer satisfaction by improving product delivery times and increasing overall margins on projects while lowing the cost structure, reducing manpower, and working across a diverse portfolio of project types in a multicultural arena. This paper addresses the procedures employed and challenges faced by the Alfa Laval management team to accomplish this major restructuring.
The Need for Project Management
Alfa Laval is a 120-year old Swedish based manufacturer of separation, heat transfer and fluid handling equipment. At the time this reorganization began, Alfa Laval was owned by Tetra Laval, a large, privately owned food processing and packaging company based in Lund, Sweden. However by the time the reorganization was completed and in place, Alfa Laval had been sold to a large Scandinavian investment banking concern.
Selling and implementing projects has always been an important function at Alfa Laval; however, the method and resources used to do so varied by market area and company location. In fact, prior to the implementation of a project management organization, there was no standard definition of the necessary project manager skill set or the organizational responsibility required to successfully handle a project. As can be expected under these conditions the results achieved in handling projects varied considerably from project to project.
With increasing competition, decreasing margins, and a push to continuously improve customer satisfaction, the need for world-class project management across a varied project business was clearly recognized by corporate management. The motivation to move swiftly on this initiative was increased significantly by the demands of a an aggressive corporate debt reduction plan put in place by Alfa Laval's new management team in order to position Alfa Laval for a public offering in the near future.
This Global project management initiative was part of an overall top to bottom reorganization of Alfa Laval involving the elimination of excess manufacturing capacity and the collection of all remaining manufacturing sites and resources within one global operations division, the reorganizing of the numerous market units into two global divisions. Equipment division for those markets that required the supply of simple components with excellent logistical precision and the Process Technology Division for those markets requiring complex process solutions supplied via excellent project management. Within this new organization the natural home for the project management organization was within the Process Technology Division. The Project Management organization was the core of a new group called Engineering & Supply. In order to effective communicate this initiative, the term “Beyond Expectations” was coined and has been the subject of extensive updates and reinforcement by management at all levels. Like any challenging initiative success can only be ensured if a internal champion exists that has the drive and knowledge to knock down obstacles and keep things moving. The E&S initiative was fortunate in this respect in that the Global Manager of the PTD Division has a strong project management background with a history of success in implementing project management based organizations.
The Plan Unfolds
As the first step in this initiative, a steering committee was appointed to develop a plan for the restructuring. The steering committee was comprised of the most senior managers representing each of the PTD marketing units, the head of E&S (who is at the VP level), the president of the PTD division as well as key support groups such as finance and product management. In order to obtain a truly objective view of the current state of affairs to obtain benchmarking data against other firms known for best in class project management organizations and systems, an outside consultant was employed and became part of the steering group. The consultant quickly audited all Alfa Laval sites where significant project activities were carried out to access in house capabilities. As suspected, the results of this exercise showed that capabilities varied greatly and in most cases were below best in class level. Based on these findings the steering committee established five major initiatives for the restructuring of E&S to achieve best in class project management and order execution capabilities:
1. E&S organization and Processes
2. Project Management and Engineering Tools
4. Cost Structure and financial reporting
5. Purchasing Processes and savings
A multinational, multidiscipline team was selected to implement each of these five initiatives. Careful attention was paid to the development of a reporting system to keep track of progress towards pre-established deliverable categories that defined implementation dates, handover plans (from initiative teams to line management), transition plans and validation of transition content. Since the steering group was in agreement that the final E&S organization should contain a PM center of excellence post, this position was established to manage the five key initiatives. The natural selection for this post was the VP of E&S who had a huge stake in successful implementation of the E&S project. The results from the five initiatives are described below.
Initiative 1 defined the main processes for the newly formed Engineering and Supply group and laid the framework for the organization. This initiative detailed the critical E&S and project management processes that would be used throughout the organization, the roles and responsibilities of key positions were described, and the critical interfaces between E&S and its internal customers including the market units was mapped out in detail. Particular attention was paid to defining the skills and qualification levels of the various positions in E&S and the market units involved in the project acquisition and implementation process.
Initiative 2 provided E&S with the right set of tools to match customer needs, outpace competitors, and maximize profits. Existing tools in specific areas were first baselined, and then tool specifications were mapped from process requirements as defined by Initiative 1. Selection criteria for the tools were then set up and best practice tools selected for use across all E&S sites. In some cases such as a tool for project scheduling, a best practice tool was already in use and therefore available in house. The task then became to ensure that all sites had access to the tool and used the tool in a similar way. When an in house solution did not exist, a detailed cost/benefit study was conducted and a careful and competitive tool selection process was carried out.
Initiative 3 was designed to ensure that all stakeholders and participants remain informed and involved. This initiative mapped past and ongoing communication activities and set up a communication strategy for the new organization. It also looked for short-term success in other initiatives, advertised it to the company and helped to institutionalize the change.
Initiative 4 was set up to optimize cost structures, to unify reporting methods and to enhance affiliation with E&S across sites, This initiative harmonized the E&S reporting structure and standardized the allocation of indirect costs in a way that carefully balanced the benefits of activity based costing vs. reporting and accounting complexity. With the financial figures normalized across sites, “apples to apples” comparisons of cost vs. function were used to ensure that each organization was operating in a cost-effective way. Since E&S is responsible for the fabrication of process modules and plants the cost effectiveness of several internal facilities were compared against each other and also against external suppliers to look at the possibility of consolidation of small-scale activities into larger centers to service Alfa Laval's global needs.
Initiative 5 pooled all of the previously widely disbursed purchasing activities within international Alfa Laval sites to determine the total component, material and fabrication spend and to set an aggressive but achievable total E&S spending budget reductions. One key tenet of the activities of Initiative 5 was to form a close working relationship with the purchasing group within the operations divisions that bought for core product manufacturing activities, using the leverage of this large volume buy to achieve better price discounts from suppliers. By making these changes, a targeted savings of 3.6 million USD was identified.
Making it Happen
The successful completion of the above restructuring planning initiatives in total led to an E&S organization that is responsible for the following functions:
• Project Management
• Project Engineering—mechanical, electrical and controls
• Modules Fabrication
• Complete process plant design and erection
• Commissioning and Start up.
Prior to the full implementation of the plan, an E&S Vision Statement and an E&S Mission Statement were developed. These statements served as guiding principles and ideas to allow members of the organization to act and make decisions independently but within the same guidelines.
E&S Vision Statement
The E&S Vision Statement was defined as follows: “Engineering and Supply is a professional and efficient service provider for PTD. We deliver world-class project management and project execution, while maximizing profits for internal and external customers. We support the increasing demand for solutions.”
E&S Mission Statement
The E&S Mission Statement was defined as follows: “E&S is a service organization committed to supplying professional project management and order execution for all projects in the Process Technology Division; maximizing profits while maintaining a positive relationship with both internal and external customers; driving designs and systems toward standardization and employee development and training.”
With the mission statement and vision developed, and the major objectives clearly defined, an implementation strategy to achieve these objectives was implemented. The strategy consisted of the following three key directives: (1) Improve the Order Process, (2) Use the Right Tools and (3) Create the Right Organization.
Improve the Order Process
Prior to the existence of the E&S organization, each market unit within Alfa Laval utilized a different process for order booking and execution from the time a purchase order was received until it was completed. A one-size-fits-all approach was used, which often proved to be overkill on smaller orders and too simplistic for larger project orders. One of the challenges of the new E&S organization was to integrate the best part of each of these processes into a single process for all of E&S to use.
In order to optimize resources, a strong focus was put on driving toward standardization of the engineering components and fabrication of small modular system solutions. This would improve the overall cost of these units and also free up resources so that more complicated plant or system orders could be executed in the right way. This concept was implemented by the setup of several of standard module centers (SMC) each serving several market areas that had common design code and material/industry requirements. Processes were put in place to clearly identify that orders can flow to the SMC's and that require more attention via the E&S centers described earlier. To optimize larger project order execution, several processes have been implemented including, a risk management system, a project planning system and a project status review system. Overall project competence was improved through an international training program, information exchange between sites, a series of international team-building exercises, increased communication to employees, and a “traveling road show,” where the drivers of these concepts meet with the rank and file at the major E&S sites to fully explain these concepts and field questions and suggestions for improvement.
To be more effective at handling larger projects, a project-coding scheme was developed to classify incoming projects based on their degree of complexity, amount of engineering requirements and risk profile. Extensive use of new templates for order handoff, kickoff, planning, testing and final customer acceptance ensured that identified best practices were consistently implemented on these very important projects. A “working model” was implemented which clearly defined the roles and responsibilities of the project team that consisted of both market unit and E&S personnel. This helped to establish a platform from which Alfa Laval's substantial investment in high caliber Project Management talent could provide a return of investment via close evaluation and control of the order acquisition and implementation process. Careful attention was paid to bringing the PM's into play on only those proposals or bids that were firm and had a high probability of being booked.
Use the Right Tools
It was very apparent that the E&S organization required a series of project management tools to maintain a world-class project management organization. A survey conducted by an international consulting firm, questioned each site about best practices methods in the following six areas: (1) cost estimation, (2) Scheduling and Tracking, (3) Requirements Management, (4) Design, (5) Purchasing, and (6) Financial Management. The responses were compiled into a score that was compared to other top-shelf industrial companies and indicated the areas where tools were most needed at Alfa Laval.
Best Practices tools and procedures were gathered from all sites and compared to determine if there was an adequate tool or procedure in house for a particular function. A detailed questionnaire was then sent to each site for a more detailed comparison. The resulting comparison chart indicated that although some sites had developed effective tools for selected applications, few companywide tools existed.
Additionally, while capabilities did vary from site to site, scores showed a consistent pattern of relative strengths and weaknesses in a cross industry best practice comparison. Gap Analysis indicated that the most significant opportunities to build capabilities were in Performance Management, Risk Management, and the Project Review Process. This analysis resulted in the introduction of three new major tools that were not previously available to project teams. These tools included: (1) The E&S Engineering Handbook, (2) Product Data Manager (PDM), and (3) Lotus Notes based Project Status Review (PSR) Database.
The E&S Engineering Handbook was created as a database on the Lotus Notes platform as an information tool, QMS, and best practice file holder. It can be accessed from every E&S site around the world and contains all E&S policies, templates, and procedures. These include best practice procedures, templates, tools, strategies, policies, project startup procedures, project planning procedures, project administration procedures, project closeout procedures, financing reporting procedures, purchasing procedures, etc.
The Product Data Manager (PDM) tool is a project engineering and data management tool that is used throughout the entire E&S organization. PDM requires that engineering data is entered only once into one system and then becomes readily available for future uses. The system allows data to be reused by copying and pasting entire designs from one application to the next. It is engineering with a life cycle approach in mind.
The Project Status Review (PSR) database is in a world wide accessible Lotus Notes Database, which contains progress status reports on each project that are updated by the Project Manager as the project progresses. The database allows any market unit manager to know the status of a project from anywhere in the world. Additionally, it helps a Project Manager to know if a similar project was completed somewhere else in the world, the total cost for that project, and if the project was delivered on schedule or not. All large projects are required to have a PSR completed in the database that must be updated by the Project Manager by the first of every month.
Create the Right Organization
As a result of the reorganization, four primary Project Management Centers of Excellence sites were established in Copenhagen (Denmark), Warminster (USA), Tumba (Sweden), and Brussels (Belgium), with sub-sites also established in India, Britain, Mexico, Brazil, and several other locations. Each of these sites was staffed with international project management professionals from within the organization to meet the specific needs of each site. Standard module centers have been established in Sweden, Germany, and Denmark.
Three defined goals for the E&S organization included the development of global and local organizations with common functionality and high flexibility, to improve cross-site communication and teamwork, and to staff for stabile high-quality employees. The E&S organization was set up to staff and support local Market Units and Sales during the bid and order execution phase of the project. The goal is to create functional teams, to execute projects through geographically selected E&S Sites, and to utilize expertise and resources across sites.
The establishment of a world-class project management organization within such a large, multicultural firm during a period of major corporate reorganization was a huge undertaking with significant challenges. Some of the challenges were common to all cultures, such as a fundamental resistance to change of any type residing within many individuals, establishing procedures that encroached on traditional sales organization and dealing with inadequate staffing. However, this project was also complicated significantly by many issues that were a result of the global nature of the reorganization within so many countries. These issues included differences in the nature of how cultures do business, communication challenges associated with language differences, establishment of purchasing agreements at a global level, and differences with various national and government regulations.
Cultural and language barriers were perhaps the most obvious challenge that had to be overcome during the course of this project. While many of the cultures of Western Europe are similar, they are different from those of Eastern Europe and of the U.S. Additionally, there were many different languages spoken by the participants, and although many of the employees spoke English, there were often misinterpretations and misunderstandings. These issues were not easily resolved, but the impact was softened though patience, extensive teambuilding, and the use of English as the formal language.
Funding of the centralized PM organization was a major issue that was at times difficult to resolve. Many of the Market Units have had Project Managers in the past, but without actually tracking the cost of this function to a project. It was therefore difficult for them to understand how they would benefit from a centralized project management organization that would apparently cost more for essentially the same services. Even after the decision was made to absorb PM costs via hourly absorption charged directly as a cost of goods sold, issues came up on how to handle underabsorbed personnel costs. Finally, a method of distributing all costs associated with the new E&S Project Management organization was agreed to.
Market Unit (sales) and PM conflicts were also significant. The Market Units have a tendency to have a pure customer focus, while the new Project Management focus was a more balanced approach. Initially, and to some extent throughout the course of the project, this resulted in disagreements as to how to handle various project issues. Additionally, the Market Units were accustomed to running projects themselves with varying degrees of success, and were initially reluctant to hand over control to a centralized group. This issue was only really resolved after E&S had managed a number of projects for each of the market units and could gradually prove added value.
Employee relationships and moral during the reorganization were also major obstacles that had to be dealt with very carefully. Many employees were asked to relocate to other areas or perhaps even other countries. While relocations worked well for some employees, this proved to be more difficult for others for a variety of reasons. In many situations, the primarily and perhaps best-qualified candidate for a particular position was not able to relocate, leaving the company faced with some difficult decisions.
Rightsizing of staff was also a major hurdle that needed to be overcome. Cutting staff in many instances is the fastest way to cut costs. However, if not performed correctly, cutting staff can also be a major moral buster and drain the organization of valuable expertise. Many good Project Managers and Project Engineers were lost out of fear of either being downsized or being relocated. In some situations, moral suffered and caused a drop in overall production efficiency. Perhaps the best defense against this problem was good and frequent communication.
Developing common practices among cultural and marketing groups, which were often quite different, was also difficult. Some of the markets covered by the new E&S group include the brewery segment, environmental water and wastewater, oilfields, and power industries. Each of these industries and market segments has a different culture with different practices as standard. As an example, a brewery project would generally have a much different set of standard specifications than a wastewater treatment plant. Yet the goal was to provide a common method of dealing with each of these market segments, which would maximize efficiency for the group.
Implementation of projects during the reorganization was also very difficult. Existing Project Managers were used to running projects for the Market Units and now were working for the E&S organization with a different perspective. Additionally, teams were split up due to relocations, many of the Project Managers were serving on committees, and many of the resources required were not yet in place. However, these issues were solved by a lot of training and the skillful use of temporary employees.
E&S was established as a global service organization within the Product Technologies Division to provide excellence in simple order handling as well as excellence in project management of large project orders. A steering committee that included senior management representation from the marketing, sales, project management and finance organizations structured and guided the initiative to ensure success. Four primary Project Management Centers of Excellence sites were established in Copenhagen (Denmark), Warminster (USA), Tumba (Sweden), and Brussels (Belgium), with sub-sites established in India, Britain, Mexico, Brazil, and several other locations. Each of these sites was staffed with international project management professionals to meet the specific needs of Alfa Laval's project business.
One of the most important functions of this whole procedure was the establishment of standard best practice project management processes, procedures, and tools that are used by each project management sites. Many different challenges were faced during the process, some predictable and some unexpected. Each of the challenges was solved in accordance with the E&S Vision, Mission, and Strategy statements.
Alfa Laval now has in place a global Project Management based organization dedicated to handling projects in a timely and cost effective manner. Alfa Laval E&S has the recognition and support throughout Alfa Laval that allows the project management process to succeed. And when projects succeed customers are happy and when you have happy customers the business succeeds.
Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 • San Antonio, Texas, USA