From PMO to PBO
the PMO as a vehicle for organizational change
Project-Based Organisations (PBOs) conduct the majority of their activities as projects and/or privilege project over functional approaches. They are fast emerging as a serious organizational trend, but many organizations are still unsure on how to structure themselves to effectively create a strategic advantage from projects. As part of this trend, Program/Project Management Offices (PMOs) have become increasingly popular organisational structures, but studies demonstrate that these PMOs are relatively short-lived: on average two years. Our experience shows that, although many PMOs are just disbanded, sometimes the PMO can be a stepping stone to an organization-wide organizational transformation and that its temporary state could therefore be a desired characteristic.
In the Valense network, we have noticed that in many organizations where PMOs have been set up as permanent stand-alone structures, internal conflict has arisen with both line and project areas of the business. This tendency is confirmed by a number of recent studies on PMOs and is especially true in traditional or matrix organizations. However, we have also been involved in mandates where reorienting the PMO's role as a transitional or virtual structure could positively assist organizational transformation and the emergence of an integrated PBO.
This paper will use both research and case examples to demonstrate how PMOs can be developed as vehicles to organizational change and effectively minimize conflict and tension while ensuring sustainability of the organizational project management (OPM) approach. The PMO can be an effective vehicle to integrate strategy, project, program and portfolio management in an overall OPM approach.
Project-Based Organisations (PBO)
PBOs conduct the majority of their activities as projects and/or privilege project over functional approaches; they can include departments within functional organizations, matrix organizations, projectized organizations, as well as other less known forms. They are receiving increased consideration as an emergent organizational form, both in organizational management (Gann & Salter 2000; Hobday, 2000) and in project management (Gareis, 2004; Keegan & Turner 2002; Thiry, 2006). Despite the popularity of PBOs and project management in general, many organizations still do not understand how to combine and use their different elements—projects, programs, portfolio, and the PMO—to effectively create strategic advantage. As the implementation of PMOs is spreading, often at an alarming rate, we have decided to address the issues of what functions the PMO should perform and how to set it up to support an integrated PBO.
Many well publicized studies (KPMG, 1997; Standish, 1996; CIO Australia, 2006) have sparked an interest in the relationship between the practice of project management and its organizational context. Most researchers and consultants though focus on the failures of project management to adapt itself to the current organizational context (Winch, 2004; Longman & Mullins, 2004). As we all well know, the current organizational management context is still dominated by mechanistic, control-based organizational models (O'Sullivan, 2000; Tsoukas & Chia, 2002) and 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 strong authority and reporting lines (Moore, 2000; Richards, 2001). We also know that a mechanistic style of management prevents organizations from being dynamic and innovative because it minimizes interactions among its components.
On the other hand, in today's constant change society, the organizational context is becoming more and more turbulent and despite the advent of project management as a significant form of organizational management, many PBOs still display structures that are very hierarchical in nature and that foster compartmentalisation and vertical control. For many years now, the matrix organization has been hailed as the way to deal with projects in traditional settings, but issues concerning the use of the matrix have not been resolved. 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 is always faced with the dilemma of having to choose between giving power to the project management function or the line managers. 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.
Recently, many organizations responded to these problems by setting up a PMO. The problem lies in the fact that they are still not clear on what the PMO should do. Therefore, when PMOs are established within traditional or matrix organizations and start exercising power traditionally devoted to business managers, one can only imagine the business managers' reactions. As project management is gaining more and more ground in organizations, this problem will only increase.
It is now well accepted that most traditional organizations are better suited to stable environments and employ a top-down approach. Strategy is formulated at the top along with the major initiatives for achieving it. Hybrid approaches like the matrix create a structure in the middle of the organization that encourages interface across departments, but these cause many reporting and authority problems. Many of these organizational structures are unfortunately encouraging excessive control and reporting that develop potential power struggles and conflict. Three recent empirical studies (Bresnen, Goussevskaia, & Swan, 2004; Lindkvist, 2004; Dovey & Fenech, 2007) have demonstrated that, when set in traditional structures, PBOs display a number of weaknesses, especially concerning coordination between strategy and projects and the difficulty to create cross-functional management teams. Investigations of PMOs (BIA, 2004; Hobbs & Aubry, 2005; Santosus, 2003) seem to have confirmed that the traditional organization and the PMO may not have the kind of harmonious relationship one would hope for.
Based on Valense's experience as well as that of colleagues and research findings (Hobbs & Aubry, 2005; BIA, 2004; CIO, 2003), five main functions can be identified for the PMO, typically in the following order:
- Development of project management competencies and methodologies (Training, Standardization of Processes and Procedures)
- Monitoring and controlling project performance (Measurement and Reporting)
- Multi-project management (Control and Integration of Programs and Projects)
- Strategic management (Portfolio Optimization and Relationship Management)
- Organizational learning (Center of Excellence)
When PMOs started being established in the late 1990s, they typically focused on the first two functions. As IT tools were developing, especially ERPs (Enterprise Resource Planning Programs), the PMO's focus started to include multi-project management. Finally, in the last few years, many PMOs have started playing a more strategic role by handling portfolio management activities and project governance. Organizational learning, which is linked to best practice in governance, is still in its infancy, as it does not go much beyond data gathering.
Typically, the literature defines three levels of PMO (Thiry & Matthey, 2005):
- The strategic level: corporate PMO, which defines and aligns strategic direction of portfolio and develops project management culture
- The tactical level: business unit or program PMO, which develops formal practice procedures, standards & methods, provides portfolio management tools and techniques, and assists with HR functions (training, competency standards, career development, mentorship, and performance evaluation)
- The project-level PMO, which plays an administrative support role and assists projects with data and time-intensive tasks (scheduling, planning, change control, and reporting)
In most cases, the PMO is expected to provide consistency across multiple projects and programs, specifically in terms of processes and progress reporting. Our own experience is that often a PMO is started in one department, typically IT, and starts playing either the Program PMO or the Project PMO role for that department. In many organizations, it is then imitated or repeated in other departments until the organization feels the need to regain control and sets up a corporate-level PMO. Often, this corporate-level PMO is only a governance control center based on scoreboards and aggregation of project data at the top management level.
The PMO as a Permanent Structure
The situation described above is typical of the development of the PMO as a permanent structure. The experience of the Valense network is that when the PMO is set up as a project-based structure in traditional organizations, it is often based on project management principles. As it grows and takes more responsibilities, its members assume responsibilities that traditionally belonged to other departments. For example, resource allocation, which traditionally belonged to the finance department, is now called portfolio management; the development of project processes and procedures, which traditionally belonged to the quality department, becomes the exclusive turf of the PMO; and finally, project management training and recruitment, traditionally belonging to the HR department, is now also handled by the PMO. These departments are quite powerful and it is not good to tread their turf uninvited. Irrespectively of its success, the PMO is perceived as the new kid on the block trying to take over the street.
This situation outlines the fact that most organizations currently use the PMO as an end rather than a means and in so doing create resistance from line and support areas, which see it as a competitor, and even from project managers, who see it as a remote control body (Santosus, 2003). In Exhibit 1, we show how the structure of the organization is affected by a strong PMO and the frictions it can create by reducing the operations-project interactions and competing for attention at the strategy level. It becomes a matter of defending each other's castle rather than a matter of integration.
Exhibit 1 – The PMO in a Traditional Setting (adapted from PMI, 2006, The Standard for Portfolio Management, p. 7)
These tensions can be quite serious and deep-rooted, as shown by the following case (Dovey & Fenech, 2007), 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 reengineering 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 their paper “Growing Up…The Information Technology Project Management Office (PMO)'s Journey from Infancy to Maturity,” Woerner and Aziz (2006) argued that, in order to survive and reach maturity, the IT PMO must constantly evolve and that especially “in dynamic organizations […] it is important to establish a culture of continuous improvement.” They also argued that the PMO is mature when “the PMO is fully established organizationally within the larger organization it serves” (2006, p.6).
The PMO as a Transitional Process
Our own experience, confirmed by other PMO consultants (Gaddie, 2006; Kumar, 2007; Duggal, 2007), shows that PMOs that had been set in one department or entity of an organization are now being exported to cover the whole organization as organizations mature towards being project-based. This is a time when either conflict arises, as explained in the previous section, or the PMO functions become integrated, as for example at the New York Times, where the PMO has evolved from a permanent structure to a “virtual PMO” (Santosus, 2003). In order to achieve the latter, the PMO must be seen as a vehicle to implement organizational change and ultimately achieve full integration; as such, it needs to adapt to evolving circumstances. Rigid adherence to original assumptions and goals may prove fatal to its existence. The PMO team must have the courage to continually reassess their results and review their objectives accordingly.
Whereas, the PMO was recently mostly focused on the development of PM competencies and standardization of processes and procedures, in the last few years, Valense's observation, also reported by others, has been that PMOs are moving from a tactical to a more strategic focus and its members are given more and more portfolio management and governance responsibilities. Traditionally, the implementers of PMOs have maintained a tactical view of the PMO; however, more and more, executives and other sponsors expect strategic applications of PMOs. This is one of the issues facing permanent PMOs: if they focus on traditional PMO functions like process procedures and reporting, they will not be able to adapt to the higher-level requirements of their new role. On the other hand, if they take on a more strategic and governance role, they will inevitably tread into the turf of other powerful players. So, what is the solution to this conundrum?
Our recent experience shows that there is an alternate role for the PMO as a temporary venture to initiate the creation of an integrated PBO. In order to achieve this, the sponsors of the PMO must have a clear vision of its expected ultimate purpose as a governance structure that aligns the organization's portfolio with its vision and enables this vision to be flexible enough to adapt to a changing business environment. As shown in Exhibit 2, this will be possible through:
- A strong link between strategic management and the organization's portfolio
- The efficient and effective delivery of business benefits (results) through programs and projects
- Deliverables that contribute to create overall value (innovation) for the organization
- A strong learning process that has the capability to influence future strategic decisions
Exhibit 2 – The PMO as a Transitional Governance Process
In this framework, the PMO acts as a link between the strategy and the portfolio of activities, providing leadership and policies to guide the governance process, as well as consistent processes and procedures to guarantee the efficient implementation of the organization's portfolio. If this vision is to be implemented as an organization-wide framework, the organization's portfolio should not only include programs and projects, but all the activities of the organization, including operational activities. The functions of the PMO will then be fully integrated within every department.
Setting up the PMO as a Transitional Framework
Recently Valense was commissioned to transform one of the main departments of a multinational financial organization into a PBO. During this long-term mandate, we had the opportunity to develop a process for developing and implementing the PMO functions described above, covering all the aspects of the organization's business. We will now describe how the PMO can be a vehicle towards successful OPM and the development of a PBO.
The first step must be to recognize that the PMO will most likely change over time and that its structures should not necessarily be seen as permanent, but as transitory. Secondly, the implementation team should clearly distinguish two stages in the transition. One is the actual transition stage, where the PMO is established and things are expected to be in turmoil and in flux. It should be made very clear with all the organizational actors that this stage will come to an end within an acceptable period of time, the objective being to reassure them that this intense state of unrest is only temporary. The second stage is in fact a “state”; it is the transformation state, where the PMO will be phased out as functions are integrated and the initial organizational objectives are achieved. One has to be careful, though: although stable, this state should not be static, but stay dynamic to offer the necessary flexibility to adapt to a business environment that is, in essence, turbulent.
Exhibit 3 shows the main objectives of the program in each of the two phases.
Exhibit 3 – Transition and Transformation Phases of PBO Implementation
The transition phase and transformation state can be iterated, and not all functions of either will be developed at the same pace. It is essential to pace changes to address possible resistance to, or acceptance of, change and to make sure to deliver first the functions that are most significant for success; this may change for each organization. The best way to implement this framework is to set up a strategic program to manage the implementation of the PMO. The task of the program team will be to first distinguish between the main functions required from the PMO, again this will vary from organization to organization. It must be explained to stakeholders that a program is not a project and therefore that milestones and results are likely to evolve as the program develops. Key stakeholders should be consulted and involved in these developments.
In this context, the PMO becomes the vehicle to implement changes. In a the final report for a recent mandate with a large multinational consortium, we wrote: “The PMO at the holding level has to take a leadership role, by moving beyond the simple collation of data and introduction of reporting tools to focusing on a more comprehensive, planned approach that can address critical issues.” In this case, the purpose of the PMO would be to:
- Improve the capability to execute projects and initiatives at the tactical level.
- Provide decision support to prioritize and balance the various projects, programs, and initiatives.
- Link these two aspects by governance to provide leadership and establish standards across entities.
- Support all of these with information, monitoring, and reporting on the health and status of projects.
- Address organizational silos and interface gaps with communication and relationship management.
The PMO would focus on each of these areas as appropriate, facilitating and enabling the development and integration of the right people, processes, and tools to provide results. It is obvious that for organizational integration, the PMO would be much more effective as a facilitating system than as a permanent structure. Once these objectives are achieved, they must be redistributed to the organization's departments, which are best placed to manage them on a regular basis.
In the case of the financial organization, we identified all the functions that would have typically been required from a PMO and integrated them directly into the new organizational system. We suggested that they define an end-to-end-process as well as the required functions for all activities at each stage and gate, and that they clearly define roles and responsibilities across the process for both the management team and implementation team.
Notice that in these two cases the focus of the PMO implementation was on culture change and functions rather than structures, this is a key aspect of success. Our recommendation in both cases also included setting up a strategic level team or program management council to facilitate the implementation of the PMO. Ultimately, the objective is to completely integrate projects and operations into a corporate portfolio, not just a project portfolio. In this way the original organizational silos are broken down and the whole organization works to deliver business benefits using a project management framework. This framework includes portfolio management, which manages the whole organization's activities portfolio; program management, to manage all of the organizations strategic initiatives; and project management, to manage individual deliverables (products and services). This framework is supported by a complete governance system and operational management. Exhibit 4 graphically displays this situation.
Exhibit 4 – Fully Integrated PMO Functions into PBO
We have demonstrated that, not only from our experience, but also that of others and research, a traditional approach to the PMO can generate conflict and resistance in organizations, to the point where it is sometimes disbanded. This situation creates a negative impact that can prevent the reinsertion of a PMO in the future; it could even create a backlash against project management in general.
Our experience is that the PMO should be flexible and constantly evolve to adapt to changing organizational pressures. Ideally, the functions of the PMO should be integrated into organizational processes and disseminated within the organization rather than centralized. Centralization should occur only during the transition stage to ensure consistency of methods and processes across the organization. As such, we must recognize the importance of the PMO as a vehicle for organizational change.
When the implementation of the PMO is seen as an organizational change process, it becomes obvious to manage it as a program, the ultimate objective of which is to set up an integrated PBO: “an organization that conducts the majority of its activities as projects and/or privileges project over functional approaches.”
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© 2008, Michel Thiry
Originally published as a part of 2008 PMI EMEA Global Congress Proceedings – Malta