what the winners do
Dragan Milosevic, Associate Professor, Portland State University
And Ozbay, Ph.D. Student, Portland State University
Just as the integration of project management (PM) with total quality management, concurrent engineering, change management, and risk management was key to project excellence in the 1990s (Kerzner 1998), project delivery capability (PDC) will be crucial in the 2000s. In the coming decade, project-based businesses will lead or lag depending on whether they get a handle on their PDC. Some companies—Intel, Armstrong, and Lucent Technologies—already built the capability to deliver their projects faster, cheaper, and better than competitors that treat project delivery as a purely unique and creative process. Most other companies will have to build this PDC if they are to survive and prosper.
Over the past two years, we studied how those who lead differ from those who lag in PDC. Our findings indicate that leaders:
• Deliver projects that are significantly faster, cheaper, and higher in quality and customer satisfaction than in organizations that lag
• Employ PM tools that are more consciously selected and more compatible
• Grow project leaders with superior skills
• Build smoother and more efficient project delivery processes
• Deploy more meaningful, regular, and comprehensive project metrics.
These differences are not industry specific, nor are they limited to certain areas and project types. The study found that the critical differences between leaders and laggards:
• Were present across industries
• Were present across project types
• Were as present in large as in small projects.
In short, the study found large differences among companies’ abilities to deliver projects, and companies with more effective projects seemed to be doing certain things that companies with less effective projects were not. Before we delve into the differences, we need to fathom why project delivery is so important.
The ability to deliver projects, to move them from inception to deployment quickly and efficiently per predetermined schedule, cost, quality, and customer satisfaction goals, is what we term PDC. It is of paramount importance in the ever-changing theater of business battles. Sticking out among these familiar changes is the speed in project delivery and its fundamental significance to the business and its strategic models.
Take, for example, the auto industry. In the 1980s, delivering a car from concept to market used to take close to seven years. Developers of subsequent generations of cars have made giant strides—cutting the delivery process to less than three years. Empirical evidence of project cycle time reduction in other industries is abundant as well (Hoch 2000). Firms such as General Electric, NEC, Northern Telecom, and AT&T managed to reduce their average cycle times by 20% to 50%. The power of cycle time lies in its consequences. In product development, the company that hits the market first, before there is competition, will often enjoy premium pricing, higher profit margins, and increased market share.
Another competitive reality driving the increasing importance of PDC is that customers have taken charge. They tell suppliers what they want, when they want it, how they want it, and how much they are willing to pay. As a result there is no such a thing as the customer; there is only this customer, the one who behaves as royalty. Satisfied customers are critical for a company's economic returns—in 1997 companies that reached higher customer satisfaction created over 100% more shareholder wealth than their competitors with lower customer satisfaction scores. Obviously, customer satisfaction pays off.
Quality reigns too. When Toyota decided to introduce its Lexus models and compete against Mercedes and BMW, it knew the models needed to be of premium quality. Like other winners, Toyota thrives on the idea of creating superior value by exceeding buyer expectations on quality and service. Make no mistake; the automobile industry is not the only one where the idea has occupied the center of the competitive stage. On the contrary, this philosophy of using superb quality as a source of strategic differentiation has rapidly spread across industries. Consequently, some software giants and conventional manufacturers rely on the Internet to continually sense customer needs and integrate acquired knowledge into a coherent project product design (Iansiti 2000, 109).
Projects are increasingly expensive and more complex. In order to replace material planning systems developed in its individual business units, AlliedSignal is going to roll out one enterprise resource planning system worldwide, at a cost of $300 million. Rapid cost inflation is apparent in building semiconductor fabs as well. The cost of a minimum-sized fab to manufacture memory chips, for example, rose from about $4 million in 1971 to more than $1.2 billion in 1996. The projected cost for 2001 is over $4 billion (Iansiti 2000, 76). Faced with increased cost pressures Intel pursues its “Copy exactly” policy. The premise is simple—if we standardize how we manage all projects, we will eliminate variation and lower the cost. This example clearly demonstrates that project delivery that incorporates cost leadership does matter.
Cycle times, customer satisfaction, quality differentiation, and cost leadership in project delivery are competitive factors. They make the capability to deliver projects at least as important as traditional sources of competitive advantage, including economies of scale, knowledgeable human resources, know-how, and financial capital. Companies that have PDC often manage to squeeze their competition out. Companies that fall short of it may even see their market standing rapidly dwindle.
Deploying Standardized Project Delivery
The winners in the project delivery business are clear on one thing: understanding the significance of rapid, repeatable, and concurrent delivery of projects is just the first step. What is more difficult is taking actions to secure such delivery consistently and reliably. To beef up their PDC and secure competitive business success through timely, excellent project results, high-performing organizations deploy what we call standardized project delivery (SPD) systems. SPD is a process of delivering projects that is composed of standardized practices, defined as the degree of absence of variation in implementing such practices. Accordingly, the lower the variation, the higher the standardization. SPD‘s rationale is to create a predictable process in which project delivery practices are stable and in control, preventing the practices from differing from project to project, from project manager to project manager. As a result, the process is repeatable. To build a winning SPD, leading organizations in our study build an integrated PM toolbox, grow competent project leaders, develop a streamlined project delivery process, and install a sound but comprehensive set of project performance metrics.
Use An Integrated Toolbox
The winners clearly spell out what needs to be done in a project, by whom, when and how. For this they use an integrated toolbox, including PM tools, methods, and techniques. Leaders recognize that the key to survival is a toolbox built of a set of tools that are mutually compatible and working in sync. In contrast, laggards’ toolbox consists of randomly selected tools that are often incompatible (see Exhibit 1). As a result, leading companies outperform lagging companies in PDC. They beat them in each aspect of the project delivery measures—more punctual schedules, more satisfied customers, better cost effectiveness, and higher quality accomplishments.
Winners find that the road to success is to select and consistently apply a set of aligned tools, tightly integrated with the project process and metrics. They rely on both traditional and advanced tools. Consider these examples. Project teams at Honda use project schedules that enable them to excel in rapid model replacement. If a scheduling template is developed and used over and over, it becomes a repeatable action that leads to higher productivity and lower uncertainty. Sure, using scheduling templates is neither a breakthrough nor a feat. But laggards exhibited almost no use of the templates. Rather, in constructing schedules their project managers started with a clean sheet, a clear waste of time.
Project teams at Lucent use a new generation tool—critical chain project management (CCPM)—to complete projects in half or less the time of previous similar projects. Winners like HP use another advanced tool—analytic hierarchy process (AHP)—to analyze alternative projects, identify decision criteria, compare and rank the alternatives. Winners are willing to innovate their toolbox. Take, for example, Kodak and its use of options pricing theory (OPT) to obtain a more realistic valuation of high-risk projects (Cooper 1998).
In leading companies, project teams use the toolbox to build and maintain a shared vision of what needs to be delivered and how, reinforcing the project delivery process on a day-to-day basis. For that purpose, tools are meticulously selected, carefully aligned, and subtly interlaced with project delivery steps. They are then linked to metrics and handed to project leaders to deliver results.
The winners make it clear—superior PDC requires superior project leaders. And they follow up with concrete actions to grow complete, well-rounded project leaders featuring the mastery of a multifaceted competency set, loaded with in-depth knowledge of process, interpersonal, intrapersonal and business domain (see Exhibit 1). Quite to the contrary, lagging organizations are still caught up in the process paradigm of a project manager—plan, organize, and control your project. Leaders say, yes, plan, organize, and control your project is important but that's just enough to get a foot in the door. To excel, a project leader needs to be a business leader, with polished interpersonal and intrapersonal skills (together these are often called soft skills) to get project participants to follow her. Clearly, the gap in project leaders’ skills in good and poor organizations drives differences in their PDC.
Tektronix, a leader in the testing equipment industry, views program management as a key competitive differentiator. Since its growth forecasts are rosy, Tektronix expects an increasing number of people in program manager roles. To succeed they need to serve the business (where one of 21 competencies is “manages to profitability”), serve the customer (“applies voice of the customer tools” is one of 12 competencies), and lead the program team (“acts as a coach/mentor” exemplifies the 24 competency set).
Exhibit 1. This is What Separates Leaders From Laggards in Project Delivery
The increased emphasis on leadership may be rooted in the fact that projects are often delivered in a matrix environment, where project managers have no direct authority over project team members but bear the responsibility for delivery of the project. Whether this is true or not is less important than what emerged in our study—the obsession of leading organizations with growing superb project leaders translates into PDC talk. The winning organizations with their fully loaded project leaders exhibit apparent supremacy over laggards with their process-oriented leaders in all PDC categories—delivering on cycle time, customer satisfaction, quality, and cost goals.
Develop a Streamlined Project Delivery Process
Process management has revolutionized project delivery. Winners have dissected every step in the project delivery process and fluctuations in workloads, searching for avenues to reduce variation, eliminate bottlenecks and create a repeatable delivery course. A leading company, for example, replaced its sequential stage-gate process with a new process (Cooper 1998).This break-through approach allowed project managers within-stage and across-stage overlapping of activities. Milestones define key deliverables: project schedule, technologies identified, specs completed, and manufacturing plan, for example. This part of project delivery is termed the product pipeline and is preceded by another part of the project delivery—the platform pipeline or project portfolio. Here again, clear stages, stage gates, and milestones lead through a process of selecting product platforms that maximize value, make the best strategic sense for the company, and balance risks (Cooper 1998). As elements of SPD, project portfolio and the product pipeline process are linked with “upstream” and “downstream” business processes to provide an integrated business process across the organization.
The success of leading companies lies in shared, smooth, and consistent project delivery process. To the winners, project delivery means a shared road map, focusing everyone involved on key business aspects of the project while providing consistent organization of information, communication of progress, tracking of issues, and integration of goals across all cross-functional groups. In sharp contrast, evidence emerged in our study that the poor companies engage in an ad-hoc approach, plagued with tempo-rary,chiefly improvisational policies and procedures to deal with specific projects (see Exhibit 1). Each time they start a new project, laggards have to hastily reinvent the wheel by setting up the policies and procedures that are concerned with that specific project only. The real nature of such an approach is perhaps best described by such words as impromptu and spontaneous, which is why leaders outperformed laggards in each PDC category—timeliness, customer satisfaction, cost effectiveness, and quality.
Measure Project Health
Simply building a superb project delivery process with an integrated toolbox under command of skilled project leaders does not suffice. Winners also deploy performance metrics to quantify progress in PDC. Their sentiment is that enhancing project delivery effectiveness has reached the status of survival tactics for the project delivery community. Consequently, leading companies translate the tactics into specific metrics their project people can act on and create incentives for them to accomplish the metrics (see Exhibit 1).
When a high-tech company was developing its new metrics system, it aimed at eliminating its old metrics’ perils: focus on short-term and single projects. These sporadically taken metrics either qualitatively evaluated a project goal attainment or calculated the schedule variance. Recognizing that sporadic measurements with an overwhelming focus on schedule hurt it in the past, the company launched a quest to meticulously choose and consistently take a comprehensive and compatible set of performance measurements that covers all tiers of a sound project delivery, from basic research to small, tactical projects. While such tiering proved to be a powerful performance-enhancement tool for successful companies, it needs a balancing act in order to measure PDC from various perspectives. H-P uses the return map as a financial perspective measure for the project delivery process. Canon's dedication to customer satisfaction metric is considered one of its drivers in project delivery and business success. “% of buffer consumed vs. % critical chain completed” is an internal process metric credited for cycle time improvements. And the list of metrics for different perspectives goes on.
Companies that use comprehensive, tiered, balanced metrics outperform those who use sporadic metrics focused on schedule. For leaders the fundamental purpose of using metrics is not to measure and report, as it is for laggards. Rather, leaders’ rationale is to induce and support behavioral change necessary to create and deploy a new generation of SPD capable of leading-edge performance. In that effort, leaders do not need all of those 75 metrics identified in a recent industry survey. Rather, winning companies are careful to select a handful and consistently apply them.
What winners do in project delivery may not be right for each company, but it may have some important implications for other companies. First, a project delivery system should be developed and deployed as an integrated and coherent entity. Alone, PM tools, leadership, process, and metrics would accomplish little. Each one of them has its role, but together they support and enforce each other. This is obviously in contrast with many advanced practices applied in the lagging companies, where the tendency is to deploy them independently. Certainly, having individual practices in place is much more useful than not having them. But the true potential of the individual practices is far higher when they are incorporated into and strengthen the overall project delivery system.
Second, your project delivery is what you are. In other words, the key to winning SPD is to make it part of the company's competitive strategy and personality. Because each company competes in its own business environment, with different organizational cultures and in different situations, it has to design its SPD system uniquely to fit its distinct needs. This may sound like an ignorant thought: urging all companies to build PDC. Since some companies are leaders and others followers, does each company need PDC? Definitely, not each company needs to have PDC. Well, not necessarily. There is not one PDC, but hundreds. Building PDC is not just about creating project delivery surpassing the competitors bent on obtaining the same reward. It is also about having one's own view about what the reward is. There can be as many rewards as competitors.
Finally, what drives the project delivery success of leading companies is its people. Successful SPD demands highly competent people with rich experience in project trenches, strong business acumen, great interpersonal skills, working knowledge of technology, and an affinity for systems thinking (Yassavala 2000). A “surgical” cut through all good things that winners do reveals a strong foundation of their success—all SPD practices are there to help project managers do their job effectively (Sobek 1998). Quite to the contrary, some companies tend to enslave their project managers to their SPD, making it more important than projects. In this respect, winners are clear—they grow and depend on the skills of their project managers, and they mold their SPD around this philosophy—project managers, not project delivery practices, deliver projects.
Data Collection, Variables, and Sample
We began gathering data through informal interviews with project managers from 10 organizations. Through a content analysis of the data we identified a range of issues that we grouped into project delivery process, organization, information technology, tools, metrics, culture and leadership, as extracted from the literature search. From these issues, we then defined an initial, and then the final questionnaire. After statistical tests were performed, multiple interviews were again conducted to add richness to the interpretations of the tests results.
The dependent variable is PDC, an aggregate of four criteria— the degree to which the projects accomplished their schedule, cost, quality, and customer satisfaction goals, as seen by respondents. Seven independent variables are project delivery process, organization, information technology, tools, metrics, culture, and leadership. Numerical responses of respondents about the independent variable's level of development were captured on a 5-point Likert scale (5 being the highest level, 1 being the lowest extent), the same approach taken for the dependent variable.
The respondents in our study were primarily attendees of PM workshops, people who typically know more about PM than an average project participant. Exhibit 2 presents descriptive statistics of the sample.
Based on literature search and interviews with project managers, seven hypotheses were formulated.
Exhibit 2. Descriptive Statistics of the Sample
Notes: (1) Sample size includes 239 project directors, project managers and team members; (2) Some firms are in more than one industry; (3) M is a million; and (4) K is a thousand.
Exhibit 3. Impact of Project Delivery Factors on Project Delivery Capabulity (Bivariate Analysis)
(1) Correl. Coeff. 0.001 level; (2) Mean values of each area of project delivery factors for worst, lower middle, lower upper, and top quartiles of projects in terms of project delivery capability; (3) F Signif. gives us the significance level of F for the one-way ANOVAs.; and (4) t-test gives the significance level of the t-test, top quartile vs. worst quartile on project delivery factors.
Hypothesis 1: The improvement of the project delivery process will enhance project delivery capability.
Hypothesis 2: The better project organization, the higher the project delivery capability.
Hypothesis 3: More integrated use of information technology will enhance project delivery capability.
Hypothesis 4: More systemic and compatible project delivery tools will improve project delivery capability.
Hypothesis 5: More regular and comprehensive use of project metrics will improve project delivery capability.
Hypothesis 6: The stronger the project culture, the higher the project delivery capability.
Hypothesis 7: The improvement of leadership will enhance project delivery capability.
For testing each of the hypotheses we used the same statistical plan—three methods of bivariate data analysis along with one multivariate method. The purpose was to verify relationships between independent variables and the dependent variable. The bivariate methods included:
• Pearson product-moment correlation: it measures the simple correlation between each independent and the dependent variable. This is a 0-to-1 measure, 0 meaning no relationship, and 1 meaning perfect relationship.
• ANOVAs with Duncan Multiple Range Tests is a one-way analysis of variance. First, we divided all our data points for PDC into four groups/quartiles based on the degree of effectiveness—the worst quartile (scored 1 and 2 on Likert scale), lower-middle quartile (scored 3 on Likert scale), upper-middle quartile (scored 4 on Likert scale), and top quartile (scored 5 on Likert scale). Then for each group we calculated the mean value of project delivery process, organization, information technology, tools, metrics, culture and leadership (independent variables). Finally, ANOVA was used to determine whether there are significant differences in mean values among the four quartiles/groups. The theorized logic here is that groups with higher PDC will have higher levels of project delivery process, organization, information technology, tools, metrics, culture and leadership.
Exhibit 4. Multiple Regression Analysis of Project Delivery Capability Versus Project Delivery Factors (Multivariate Analysis)
• The t-test assesses the significant difference in means between the top quartile and the worst quartile of cases in terms of PDC.
Stepwise multiple regression analysis was used as the only multivariate technique in order to validate the previous bivariate analyses: the criterion (dependent variable) was PDC, and predictors (independent variables) included process, organization, information technology, methods, metrics, culture, and leadership. Since Pearson product moment correlation indicated correlations between independent variables, several regression runs were performed, eliminating the correlations effects.
Of the seven factors hypothesized to influence PDC, five appeared to have an impact, three of them especially [see Exhibit 3 below showing the impact of project delivery factors on PDC (Bivariate Analysis)]. The top three factors that were found to improve PDC are methods, leadership, and process. Two other factors improving PDC are metrics and organization (very minor impact so we dropped it). Culture and technology were not found to have an impact on PDC.
In stepwise multiple regression (see Exhibit 4) only three of project delivery factors entered the equation—tools, leadership, and process. Not surprisingly, some project delivery factors were strongly correlated with each other: for example, tools and metrics had a correlation coefficient of 0.45. For this reason, one factor can capture the explained variance of another factor, leading to a shorter list of predictor variables (this may be a reason why metrics did not enter the equation). The explained variance (adjusted R2) was 0.307. This modest explained variance indicates that there are other important factors beyond project delivery factors that impact PDC. In summary, the testing supported Hypotheses 1, 4, 5 and 7.
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Sobek, D., Liker, J., and Ward A. 1998. Another Look at How Toyota Integrates Product Development. Harvard Business Review (July-August), 36–49.
Yassavala, A.R., and Sashittal. 2000. Strategies of Effective New Product Team Leaders. California Management Review (Winter), 34–51.
Proceedings of the Project Management Institute Annual Seminars & Symposium
November 1–10, 2001 • Nashville, Tenn., USA