Management challenges in project-intensive companies
Anders Söderholm, Ph.D., Umeå School of Business and Economics, Umeå University
This paper is on the management challenges in companies where a major part of the operations are organized as projects. Thus, I will not delve into how to manage single projects or into methods for project planning and control. The major question addressed is how to manage portfolios of projects and how to define the strategic management issues in a project-organized company.
This question is becoming more essential since many managers face a situation where they are running sets of projects in various stages of completion rather than a functionally defined area of operation. Actually, a number of conditions in the market place promote the extensive use of projects and the subsequent creation of companies that are “project-intensive” (Pinto 1998). This is not big news, see for example discussion in Dinsmore 1999, 12–13 and Ekstedt et al 1999 (see also Burnett 1998; Bennis and Slater 1998). However, general management styles, management models, and management information systems are lagging behind. General management is still mainly concerned with the traditional organizational and management models thus overlooking the needs for strategic development in a project-organized company. Besides a few exceptions, there are not many accounts in the organizational structure and design literature that account for the needs apparent in a project-organized company. Some valuable contributions are however made by, for example, Dinsmore 1999, Graham and Englund 1998, and Turner 1999. This is the rationale for the present paper.
First the content of the trendy but ambiguous term “project-organized” need to be discussed. I refer to companies using projects as a major and vital part of their business model. Such companies might display an array of various project portfolios and environments. In some cases, the projects are of a major size and thus generate a fair share of attention from management as well as from the customers. Development and deliveries of major power supply systems, nuclear plants, ships, and the like might serve as illuminating examples. In those cases, only a few, maybe only a couple, projects at the time are organized and the whole company is geared towards the completion of those efforts. In other cases, projects are smaller and numerous. Deliveries and installation of switchboard equipment, construction supplies, alarm systems, telecom systems, or information systems are likely to be organized in such contexts. It is also to be expected that individual employees are engaged in more than one project at the same time. Even the project manager might have to share his attention among a couple of projects. Components used are normally standardized but there is still a unique feature added as components and installation might be tailor-made for an individual customer.
The second group is project-intensive companies where single projects are too small to generate the undivided attention of management but still, as a group, projects are the way income is generated and production is more or less reduced to a residual of the projects organized. This is the type of companies targeted in this paper (see Turner 1999, 343–344).
This paper is focused on conclusions concerning the issues raised above. Thus, I will point on management challenges facing “mangers of project managers” in project-organized and project-intensive companies (Turner 1999, 21). Depending on the size of the company, the managers of project managers might be either top management (in small- to medium-sized companies) or functional/divisional/business unit management (in larger companies).
Strategic Management Challenge #1: Coordination of Present Project Portfolio
At any given point in time, a project-organized company runs a number of parallel projects. Some of these projects are in their early stages or in preproject phases while some are halfway, and still some are in the terminating or post-project phase. The first challenge thus is to manage the current portfolio of projects. Most typically, the portfolio is composed of both commercial projects with a strict time and cost budget, and projects that are of a development or research type where both time and cost might be continuously negotiable (Dinsmore 1999, 22; see Cooper et al 1998 for an account of portfolio management for new products).
There are at least three management issues arising when looking at the management of current project portfolio. The first one has to do with allocation of resources. Parallel projects in a company with a coherent set of products and/or customers will require similar resources in terms of manpower, components, production or procurement resources, and so on. The question is how to determine where available resources make the most out of the dollars spent. Obviously, project managers will claim that they have an imperative need for whatever resource that is scarce at the moment. Not only that, they will also call for the best and most experienced industrial designers or construction engineers. To some extent this can be levered by the cost associated with different resources but still, project managers are responsible for their projects, not for the overall goal attainment of the company. Thus they cannot be expected to readily except a delay or lower quality input in their project only because this is for the best of the company. Where are the information systems and project portfolio skills that helps managers to make just decision in these cases? Many—or most—companies lack both decision support systems and management functions to make allocation decisions among projects in a portfolio. Thus, this has to do with the allocation of scarce resources.
Second, most management information systems are highly reliable when it comes to collect and present data on the detailed status of production processes. Number of units produced, number of imperfect units, number of minutes/hours spent on production of a unit, calculated cost for production, material used, number of units in stock, number of construction/design hours spent on a particular item, so on, and so on. A number of analytical and financial reports can be generated and—if the system works—it is fairly easy to keep track of the processes within the company. However, this is not of much help in a project-intensive organization. Detailed information on the status of each and every detail of ongoing projects creates a lot of correct but irrelevant data. Instead, the challenge is to design an information system that provides managers with information on which projects need closer attention and which projects can be let alone, besides collecting general progress data. Thus, this has to do with allocation of attention.
A system where performance is evaluated against critical incidents and critical thresholds is therefore needed in project-intensive companies. Again, this is normally done for single projects and for major projects that automatically are defined as critical for the overall result of the organization. But, in project-intensive companies, this is a management issue often overlooked or hidden behind bulks of data describing all projects where low performers are blended with high performers to a comfortable average result. Problems with blurred attention are further emphasized where project portfolios are defined as the responsibility of one functional manager (e.g., construction). The functional manager will be able to fill his agenda with ongoing continuous tasks and general engineering issues and thus neglect to follow up on the income generating processes in the company.
Third, for the immediate future (short term), managers might end up in a situation where a number of projects demand similar resources for the coming period. They might require the same engineers for a certain type of task or they might demand production processes to be designed simultaneously. In other cases, it might be demands for packaging and shipping facilities or a demand for capital to make some major investments. This can be foreseen if everything runs according to plans but projects have a tendency to deviate from plans and often it is impossible to avoid peaks in the demand for critical resources even though implementation runs smoothly. When this happens, management needs information on where to spend the next dollar or, put in more general terms, management need measurements to increase efficiency of project portfolio.
This is further emphasized by the fact that project managers of projects that run well cannot be expected to release resources that they can afford but for the moment not need. Even though projects is meant to be a highly efficient and goal-driven way of working, projects where cost budgets have been generously designed might lock away resources that could make a substantial difference in other projects where a critical situation is about to arise. Project-intensive companies more often than not lack systems to make such decisions.
Strategic Management Challenge #2: Continual Company Reconfiguration
Project-intensive companies can best be described as a commercial environment that is constantly changing. What is today will be gone tomorrow. In a way, the company reconfigures itself as projects are terminated and new ones are formed (Cleland 1998). There is a dynamic touch to the project-intensive company even though projects resemble each other from one time to another. Project teams might also be the same from one time to another but still, there is a constant management issue to look ahead and resolve the future configuration.
Dealing with continual company reconfiguration holds a number of strategic issues that need to be attended. Three of them will be conveyed here. First, in a project-intensive company both commercial and development tasks are organized as projects. Commercial projects (or delivery projects) generate today’s income while development projects secure future income. The balance between development and commercialization has to be carefully monitored. Basically, management has to calculate the trade-off between exploring into new areas while also exploiting existing products and customers. Of course, this calculation will be different due to different competitive situations. Mature technologies might require less rapid product development than new web-based technology. Service-oriented companies face a different situation than the mechanical engineering company. But, independently of the situation, the balance between development and commercial activities need to be maintained and planned.
Second, the planning future configuration of the company involves strategic assessment of what kind of customers, what kind of projects, and what kind of technology/knowledge to utilize. In the selection of projects today it might be wise to include an assessment considering the contribution to future desired projects. Projects today can, for example, be used to explore possibilities to cooperate with a partner that is of interest for the years to come. Some customers requiring a specific design can be more interesting than other customers if that design is aligned with the strategic ambitions of the company. A lower profit margin can be considered in order to get a contract where some important issues for the future can be explored or developed. Of course, many companies find themselves in situations where there is no possibility to select customers due to future ambitions. If so, or if the selection provided by the market is too narrow, it is a management issue to define and seek to develop favorable projects. This might include alignment of development and commercial projects or the merger of the two types of projects. Anyway, an important issue for management is to build capacity for the future by connecting strategic ambitions of the firm with both short-and long-term project design and development (Cooper et al 1998).
Third, project-intensive companies are known to be slow learners. Knowledge does not travel fast in an organizational setting where each task is organized more or less independent of each other. Furthermore, there is not much time for sharing experiences when team members as well as project managers rush from one barely terminated project to the next one. The learning incapacity is emphasized in a project-intensive company since there are always new projects being added to the portfolio and many people are engaged in more than one project at the time. The bottom line is that learning does not occur spontaneously; it has to be facilitated and supported by organizational structures and management attention (Graham and Englund 1998, 175).
There are several ways to do this of course. Project managers and key team members can be required to release product improvement notes after completion of a commercial projects. Research and development (R&D) people can thus collect and evaluate the various comments from different projects and hopefully discover recurring problems. Written experience reports are hard to utilize and are often reported to be stored but not used. Experience sharing seminars and workshops has been used with success in some cases. Providing a short time off after a project and having project managers run different types of projects over a period of time are also measurements to support the build up of a strong organizational experience and knowledge base.
Strategic Management Challenge #3: Temporary-Permanent Relations
The temporary-permanent dilemma; or the relation between the projects on one hand and the permanent functionally organized units on the other hand; are always a subject of importance. In project-intensive companies this is of extra importance. Each project is dependent on functionally organized units since there are many projects around and since many of them are fairly small. There is not enough financial strength in the projects to incorporate all needed competencies. Instead, project offices, corporate resource centers, suppliers, and customers need to be made used of in various stages of a project. Also, due to the size of the portfolio and the relative size of each project, it might be difficult for individual project managers to keep an overview of the staff’s situation.
Consequently, many project-intensive companies have chosen not to give much independence to the projects and project managers. Functionally defined units run the projects with the support of a steering committee (sometimes the same committee for a large number of projects) where marketing or engineering officers are the most powerful and influential persons. A number of issues thus risk being forgotten, as they are neither dealt with in the projects nor by the functional organization. At the same time there are issues that can be attended to simultaneously by a number of units and projects, maybe with uncoordinated action as a result. Most important are development issues. There is no guarantee that information from the commercial projects reaches those designing product development projects or those responsible for product updates.
Solid organizational structures and policies are needed in order to distribute strategic issues among projects and functional units. Some issues important to consider are the following:
• Policies for staff development and training—how to initiate such development and how to integrate training programs with project responsibilities?
• Product development procedures—product development needs input from several sources, current and past projects being one. Furthermore, product development is often designed around platform projects or sequences of product generations. However, commercial projects can be “induced” with minor development tasks. This is often done in some industries but it is seldom coordinated with overall company product development strategy. If it is done, it should be combined with a revised cost budget for the project. Likewise, systems to collect information from concluded projects are seldom very successful and could thus be improved.
• Accounting systems—information that is released from the accounting system is often of poor quality when the aim is to reach decisions on the issues discussed in previous sections. Information is presented in ways of no relevance for project portfolio decision, especially poor for decision on future paths to take.
Exhibit 1. Organizational Structure and Management Challenges in Project-Intensive Companies
• Management hierarchies and distribution of corporate decision-making capabilities—decision-making capabilities of project managers are often, in project-intensive companies, delimited when it comes to issues not directly attached to the project at hand. Sometimes not even decisions on the project can be made independently. Project office heads or project group officers are sometime high-rank officers in the company but in many cases there is no representation of projects in the company strategic management teams.
• Developing corporate networks—projects can often be used to develop relationships with partners. For example, suppliers or important customers can be integrated in product development projects, suppliers of key components in the final product can be integrated in commercial delivery projects, and so on. This can be done based on the needs in the individual project, of course, but it can also be a part of an overall strategy to test and develop partnerships through a number of different projects. This is seldom used.
A major structural issue is how to design the project process. The possibilities are many in terms of functional, matrix and other types of overall architecture used. Here, only organization of the project process itself will be mentioned. Normally a preproject phase is expected to be followed by a project initiation phase after a formal decision to launch the project (e.g., after the contract has been signed or the product development specifications has been approved). The project manager and the project team are often not assigned until after the preproject phase. Thus the “project” has to be handed over from the preproject team to the project team. This is one of the “over-the-wall” problems that are likely to occur (Graham and Englund 1997, 92). Some companies show very good results in speed and effectiveness when the project manager is appointed as the bidding procedure starts or as soon as the need for a new platform, a new product, or a new set of components is defined. Some over-the-wall problems can be avoided by and early “launch” of the project.
Also the post-project phase could be included in the project manager responsibility. The project manger often leaves the project as soon as possible to take on new assignments. Thus, responsibility for deliveries made or for production of the new product resides elsewhere in the organization. Extending the project in this end means that the project manager is responsible for the relation with the customer for the first six months or so. Or, in the case of product development, it can be an extended responsibility for quality control and production implementation procedures during a period after the new product is put into regular production.
This is contrary to the popular belief that projects should be as short and lean as possible. Instead, what I am asking for is an extension of the projects on the expense of some functional areas responsibilities. But, the reader should bear in mind that the focus of this paper is project-intensive companies, characterized by many relatively small projects.
Project-intensive companies are common today and they appear in various industries and there are various organizational structures (Ekstedt et al 1999; Ford and Randolph 1998; Graham and Englund 1998, 12; Pinto 1998). They lag behind, however, when it comes to designing solid organizational structures and policies for how to deal with the fact that projects are the main generator of income (both present and future). Role models as well as theoretically framed models for the structuring and managing of such organizations are not very frequently reported (Dinsmore 1999 being an important exception though). This article has suggested three management challenges that need to be met as part of the management and structuring processes of project-intensive companies. Exhibit 1 shows the three challenges that have been discussed.
It all boils down to the fact that project-intensive companies do not have the same base for its existence as the traditional models for industrial organizations assumes. But it is also a result of the limits of management tools and ideas provided by academia and professional organizations. There is an ample supply of project management models and theories and, likewise, there are many general management models to use. However, the project-intensive company need to merge these fields into an appropriate management approach. This paper presented some components of such an approach.
This is a paper in progress. Comments to the author are appreciated.
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Proceedings of PMI Research Conference 2002