Creating project-based organizations to deliver value

Introduction

Project-Based Organisations (PBO) conduct the majority of their activities as projects and/or privilege project over functional approaches. They are fast emerging as a serious trend, but many organizations still do not understand how to structure themselves to effectively create a strategic advantage from projects. PBOs need to be structured to create synergy between strategy, project, program and portfolio management and the project approach needs to both generate tangible value for the stakeholders and be sustainable.

This paper will enable organizational actors to understand how they can achieve success through projects and create value instead of focusing on the utilization of existing resources and distribution of residual wealth. It will outline dynamic project-based structures that leverage the above relationships and support the delivery of business benefits through projects.

Currently, PBOs refer to a variety of organizational forms that involve the creation of temporary systems for the performance of project tasks (Hobday, 2000; Sydow, Lindkwist & Di Fillippi., 2004). PBOs are receiving increased consideration as an emerging organizational form (DeFillippi & Arthur, 1998; Gann & Salter, 2000; Hobday, 2000; Keegan & Turner, 2002). Hobday (2000), amongst others, reports that there is very little knowledge on how project-based organizations actually operate in practice. There are also very few references on how the extensive use of unique and temporary endeavours like projects and programs can influence the strategy and the design of organizations (Jamieson & Morris, 2004). As the application of project management is spreading in organizations, one needs to understand the different project-based organizational models that can accommodate various situations and address the issues of compartmentalisation, typical of traditionally structured organizations, versus integration, typical of networked organizations, as they structure their project-based organizations (PBOs).

Project-Based Organizations (PBO)

DeFillippi and Arthur (1998) have identified project-based enterprises as organizations that manage production functions within a temporary project organization setting; for example: cultural industries (film production and theatre) and professional services (public relations and events management). For firms that conduct the majority of their activities in project mode and/or privilege the project dimensions over functional dimensions in their structure and processes, Lindkvist (2004) talks about project-based firms. Expanding on Clark and Wheelwright's (1992) four organizational structures for New Product Development organizations, Hobday (2000) distinguishes six types of organizational forms from functional to project-based. He identifies two types of project organizations: project-led organizations, “in which the needs of projects outweigh the functional influence on decision-making and representation to senior management, but some coordination across project lines occurs” (p.878) and project-based organizations, where “the project is the primary business mechanism for coordinating and integrating all the main business functions of the firm [with] no formal functional coordination across project lines” (p.874).

For the purpose of this paper, we will consider project-led organizations as being the definition of the PBO concept since the pure PBO is a specialised type of organization not applicable in most cases. The “pure” PBO could in fact lead to the same degree of compartmentalization (between projects) as the pure functional organization (between departments). Additionally, PBOs can refer to either entire firms (as in construction, consultancy and professional services) or multi-firm consortia or networks (Hobday 1998); it is also possible that some large project based organizations have functional support areas or that the PBO is nested within subsidiaries or divisions of larger corporations (Sydow et al., 2004).

Traditional Organizational Structures

The current organizational management context is dominated by mechanistic, control-based organizational models (Hatch, 1997; O'Sullivan, 2000; Tsoukas & Chia, 2002). As a consequence, most current PBO structures are mechanistic in nature; their management approach is based on the extension of tools developed for the management of single projects and is grounded in linear relationships (Moore, 2000; Richards, 2001). A mechanistic style of management tends to keep organizations close to the static state because it minimizes interactions among its components. Burns and Stalker (1961) have already argued that mechanistic management is appropriate when goals are clear and little uncertainty exists in the prevailing environment but that more organic forms are better suited to more turbulent environments.

Recent project management literature promotes the use of PMO models based on the extension of project management tools and grounded in linear relationships (Crawford, 2001; EDS, 2004; Kendall & Rollins, 2003; Kwak & Dai, 2000). These latter views are exemplified in Exhibit 1, which displays a generic model, similar to those promoted by the above authors. All these models are very hierarchical in nature and foster both vertical and horizontal compartmentalisation as well as vertical control.

Typical mechanistic PBO model as described in recent PM literature

Exhibit 1: Typical mechanistic PBO model as described in recent PM literature

Consequences of the Mechanistic Approach

Recent empirical studies (Bresnen Goussevskaia & Swan, 2004; Lindkvist, 2004; Dovey & Fenech, 2006) have shown that traditional organizations that adopt a project management approach often face tension between a dynamic and flexible project approach and the firms' desire to exercise control at organizational level. Additionally, these studies and others have documented that, when set in traditional structures, project-based organizations (PBOs) also display a number of weaknesses in regards of this traditional view. Probably because of this, most organizations, even PBOs, still view projects as singular ventures, this creates many integration issues. Recently authors have argued that projects need managing within a wider context (Morris & Pinto, 2004). For example: the need to link strategy to projects and vice-versa (Morris & Jamieson, 2004); or the focus on social sciences theories as opposed to engineering or systems analysis (Winch, 2004); or still, the differences between management of human resource in traditional and project-oriented organizations (Huemann Turner & Keegan, 2004).

A particular issue that is poorly understood is the interaction between portfolio management, the PMO and programs to create real added value for the organisation. Practice suggests that portfolio management typically centres project selection on resource allocation and less on fit with the corporate strategy (Meredith & Mantel, 2005); program management is mostly associated with multi-project management, struggling to realize business benefits and inter-project learning (Thiry, 2004); and PMOs are largely used to collate project data into scorecards and issue processes and procedures (BIA, 2005; Hobbs & Aubry, 2005), rather than as a governance structure, we will further develop the latter point in the last section of the paper.

Most current research and practice literature on organizational project management still concentrates on singular aspects of the project approach. Many of the integration issues outlined above are just starting to come out.

New Developments in Organizational Management and PBOs

Stakeholders' interests (Clarke, 2004) and value creation (O'Sullivan, 2000; Blair, 2005) are two major issues that affect the makeup of organizations and, by consequence, PBOs. Project management literature has, for a long time, advocated a stakeholder perspective1, but project management continues to be practiced in a shareholder paradigm where financial measures are the main or sole criterion driving the selection and prioritisation of projects (Dyson & Berry, 1998; Meredith & Mantel, 2005). In a shareholder perspective, strategic project decisions are made based on strategic considerations that have often little to do with tangible benefits (Amram & Kulatilaka, 1999; Rappaport, 2006). The recent movement towards a more strategic approach to project management provides the opportunity to take into account these emerging theories of corporate governance and organizational purpose. An integrated vision of projects would directly link projects and programs to governance and strategy, whereas the continued promotion of single project management practices reinforces the top-down mechanistic shareholder approach and deny any value creation mission for project management, as shown in Exhibit 2.

Shareholder and stakeholder value approaches

Exhibit 2: Shareholder and stakeholder value approaches

In line with recent value creation literature (De Wit & Meyer, 2004; Jaruzelski, Dehoff & Bordia, 2005; Jugdev & Thomas, 2002), well integrated PBOs would be expected to focus less on financial investment and more on organizational effectiveness; they would display clear signs of stakeholder and value creation perspectives, including innovativeness, empowerment and stewardship, a wider set of success criteria and a drive towards sustainability over short-term results and, overall, an increased focus on the link between expected benefits and results (Dallago, 2002; Kim & Mauborgne, 2005; O'Sullivan, 2000).

Better integration in PBOs could be provided by a coherent project governance approach, which could be summarised by addressing three major issues:

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

Vertical and Horizontal Integration

Corporate strategies can be considered as medium or long-term forecasts of the organization's future position. Their implementation is usually a top-down process and regards the high level direction of the corporation. In PBOs, portfolio management should not just be used to allocate resources in the most efficient way, but foster vertical integration between programs and projects to align with corporate strategy and effectively create value for the business.

Business units, because they are close to the action, will best be able to deal with turbulent environments by developing business strategies. In PBOs, the word ‘business unit’ may often be synonymous with ‘programs’ and the advantage of a horizontally integrated project management approach versus a product delivery project management approach should be obvious.

As graphically displayed in Exhibit 3, in an organization that reveals a focus on single projects and on a multi-project management approach that focuses on resource allocation and data gathering; project managers would be expected to play a predominantly product delivery role. On the other hand, a well integrated PBO will display strong interrelationships between its projects and both its business and corporate strategies to create and realize value. In such an organization project managers would be expected to be appointed in senior management roles, or senior managers would be expected to view project management as an integrative process to deliver value to the business. Exhibit 5 displays the main roles that key actors would be expected to play in an integrated PBO.

Vertical and Horizontal Integration in PBOs

Exhibit 3: Vertical and Horizontal Integration in PBOs

Integrated Governance

It is now well established that the growing popularity of program/portfolio management and the emergence of PMOs as an organizational structure have prompted an accelerated movement towards project-based organizational structures (Hodgson 2002; Jamieson & Morris, 2004; Bredillet, 2004). Most organizations have implemented PMOs and portfolio management structures based on traditional organizational structures (see Exhibit 1). In this model, PMOs are playing a similar role to the quality department by monitoring and controlling project performance and developing project management (PM) competencies and methodologies (BIA, 2005, Hobbs & Aubry, 2005; PMI, 2004) some PMOs are also playing the role of a finance department by allocating resources across the organization (PMI, 2004); many practice authors (Crawford, 2001; EDS, 2004; Richards, 2001) also advocate a project audit role for PMOs. This perspective simply mimics traditional organizational structures, replacing management rhetoric with project rhetoric and will therefore lose the dynamism and flexibility attributes that characterise project and program management as demonstrated by recent research that a PMO's life expectancy is about 2 years (BIA, 2005, Hobbs & Aubry, 2005).

Current turbulence in organizational environments may require the development of more integrated models of PMOs where the role of the PMO would not only be to optimise the effort, issue processes and procedures and gather project data, but strongly link the programs and projects to the strategy as shown in the top part of Exhibit 4, thus exercising a true project governance role, as defined by the OECD: “governance provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” (OECD, 2004, p 13). This is a much broader view than the simple monitoring approach taken by many PMOs.

One interesting model of organizational integration and governance is the EFQM Business Excellence Model, introduced at the beginning of 1992, which has become the most widely used organizational model in Europe and is steadily spreading across the world. The basic concept of the model is that: “The ‘Results’ criteria cover what an organisation achieves. ‘Results’ are caused by ‘Enablers’ and ‘Enablers’ are improved using feedback from ‘Results’.” (http://www.efqm.org/Default.aspx?tabid=35). Elements of this model, especially “Enablers”, “Results” and “Innovation and Learning” arrows are represented in Exhibit 4.

The PMO as a Governance System in the PBO

Exhibit 4: The PMO as a Governance System in the PBO

What is interesting is that, when this approach is taken in organizations the PMO often becomes a vehicle towards an integrated PBO as witnessed in my own practice and that of many of my clients and reported by Shelley Gaddie at the PMI North American Congress 2006 in her presentation: “IT Portfolio Management Breakthroughs”.

Integrated PBOs

My partner, Manon Deguire, claimed not that long ago that building an integrated PBO is “more about culture than structures”. This fact has been demonstrated over and over through my own and some of my colleagues practice. We will now examine the roles and responsibilities of PBO actors and look at possible models of PBOs.

Roles ad Responsibilities of PBO Actors

In an integrated PBO, the roles and responsibilities of the different stakeholders are not defined by their function, but rather by their relationships, as demonstrated in the diagram below. The PBO is a dynamic entity; instead of focusing on individual accountability, the PBO should focus stakeholders on their accountability as teams whose focus is to deliver value to the stakeholders. As we will see in the next section there can be more than one team, each developing a distinct although not isolated business strategy, but they should all come together under the corporate strategy that translates the organizational purpose.

The key PBO Stakeholders: Their Roles and Responsibilities

Exhibit 5: The key PBO Stakeholders: Their Roles and Responsibilities

Models of Project-Based Organizations

Below are presented four examples of integrated project-based organizations. As you will notice, each case is different, and this is the first learning point about setting up a PBO: It must be adapted to the culture and the purpose of the existing organization; it must take into account the political and structural circumstances and build on them, rather than fight them. In their study on PMOs, Aubry and Hobbs (2005) made it very clear that organizational reality is much more complex than textbook solutions. As you will notice, the focus is on functions and relationships and how different organizational entities relate to each other to produce the best value proposition for the business and its stakeholders.

But you will also notice that there are some key aspects that are always present.

Culturally

– Move from individual accountability to both individual and team accountability

– Move from shareholder only perspective to stakeholder perspective

– Move from task-oriented focus to both task and results–oriented focus

– Move from bottom-up only to top-down and bottom-up integrated vision of Governance

– Move from control focused approach to empowerment focused approach

Structurally, this is translated by:

– In each organization there is a strong leadership entity that drives the corporate vision and mission

– There is a clear cross entity process approach from identification of the stakeholder needs to benefits—and value—delivery.

– In each organization, there are both an operation/function-based entity and a program/project-based entity, but they have separate resources, or the resources move from one to the other (this is a lesson learned from the matrix approach (Thiry, 2006), but with strong interactions between entities

– Except for the small family business (where communications and culture are strongly embedded), there are a number of overlaps between the entities

– In all of them, the structure promotes team accountability over individual, or business unit, accountability by grouping or overlapping individual entities

– Forums are established to enhance innovativeness and creativity; either through governance, PMO, or leadership meetings/forums

Temporary PBO for major strategic program, Business large organization

Exhibit 6: Temporary PBO for major strategic program, Business large organization

Small Global Family

Exhibit 7: Small Global Family

(CIO is Chief Innovation Officer)

Large Multi-National Governmental Organization

Exhibit 8: Large Multi-National Governmental Organization

Medium-Sized Services Organization

Exhibit 9: Medium-Sized Services Organization

Conclusions

In summary, as project managers are asked to take a more strategic focus and, as organizational managers are looking for better strategy delivery results, both with mitigated success, well integrated PBOs could be a possible answer provided their structures provide horizontal integration from business strategy to operational benefits and vertical integration between corporate objectives and the prioritised portfolio of projects. It is also very likely that the adoption of an integrated wide-scale project approach, including a governance-oriented PMO, will enable organizations to deliver value consistently for all their stakeholders and therefore promote the Organizational Project Management concept.

In conclusion, I would argue that the sensible adoption of an integrated project/program approach should not only encourage the emergence and enactment of new organizational dynamics, but develop a stakeholder approach and innovative concepts leading to increased value creation.

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___________________________

1 144 instances of the word “stakeholder” can be found in the A Guide to the Project Management Body of Knowledge (PMBOK® Guide) (PMI, 2004) versus 108 in the PMBOK® Guide 2000 (PMI, 2000).

© 2006, Michel Thiry
Originally published as a part of 2007 PMI Global Congress Proceedings – Hong-Kong, China

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