Project Management Institute

Service projects in the evolving economy


The purpose of this paper is to look at projects in the new evolving Economies, Economies where Service is a primary component but not the principle objective. The principle objective in these economies is to customize services to the unique needs of the Customer so that the Customer enjoys a memorable experience or transformation that is valued and rewarded. The Best Practices for managing “Experience Projects” and “Transformation Projects” are not well developed because these economies are newly evolving and there is not a large knowledge base, but there is some literature and a few project examples that begin to point the way.

In their book (“The Experience Economy, Work is Theatre & Every Business a Stage”, B. Joseph Pine ll and James H. Gilmore, Harvard Business School Press, Boston MA, 1999), Pine and Gilmore describe and then complete the Value Chain for the Experience Economy. At the high end of the Value Chain are Experiences and Transformations. These are economies where the Customer is willing to pay premium prices for the Experience or Transformation. Progression up the value chain begins with customization of commodities to make Goods, then customization of Goods by adding Services, then customization of Goods and Services to provide an Experience, and finally customization of Experiences to provide a Transformation. Experience Projects will include customization that has a demonstrably valuable Experience for the Customer. Transformation projects provide life-changing experiences for the customer. Examples of both Experience and Transformation projects are discussed for guidance on future projects.

Exhibit 1. Phases of an SAO Project Life Cycle

Phases of an SAO Project Life Cycle

The fundamentals for project management apply in the Experience Economy. But there is a shift in emphasis toward Quality Management and HR skills. The Statement of Work should include both “what” and “how” regarding the work to be performed. Formal Quality methods and tools need to lead to Continuous Improvement that is controlled and documented by the Change Management process. Human Resource management is broadened to include goals, aspiration, and capabilities of the Customer for responding to the Experience or Transformation.

Exhibit 2. Completing the Progression of Economic Value

Completing the Progression of Economic Value

The format for this paper is to:

•  Briefly review the definitions of Service and Outsourcing projects (including life cycle)

•  Discuss value chain and its relationship to SAO projects

•  Present an example of a typical Service Project in relation to the Experiences it engenders

•  Present an example of a successful Transformation Project.

What Do We Mean by Service and Outsourcing Projects?

Several years ago the Service and Outsourcing Specific Interest Group (SAO SIG) put forth the following definitions:

•  “A Service project is one whose end deliverable is primarily a service”

•  “An Outsourcing project is a special case of a Service Project where assets, human or physical, are transferred from the Buyer (Customer) to the Seller (Contractor).”

The Life Cycle of a Service Projects differs from the traditional project primarily because of the extended duration of the Manage phase. The traditional project has a defined end date that corresponds to completion of Implementation. The Project Manager of a Service Project is concerned with management of cost and scope as well as meeting the milestone of the completion of Implementation, but then moving smoothly into the Manage phase that is Operations. The end date for the Service project is established by the terms of the contract and usually occurs many years after award. Rather than concern for just Cost Management the Project Manager is concerned with the complete financial picture of the project as shown in Exhibit 1.

The Project Manager of a Service Project must manage Revenue as well as Cost to assure the profitability of the project. And, while the Project Manager manages the Revenue for his company he is also managing the Cost of the Client. Another significant difference between Service Projects and Tradition Projects is the role of Quality Management. Service Delivery is typified by the engagement of repeatable processes. This opens the door to the application of proven Quality Methodology and Tools that are essential for Continuous Improvement over the duration of the Life Cycle.

What is the Value Chain?

The Value Chain is the progression of economic offerings, beginning with basic commodities (raw materials). Pine and Gilmore have extended the value chain and provided a model for progression and regression along the value chain. The value chain begins with the extraction of basic commodities. Value is added to the commodity by customizing the commodity to produce Goods. In time, the customization becomes routine and many are producing the same Good, the differentiation among producers of the Good diminishes along with consideration of a specific Customer's needs. In this way the once customized Good becomes a Commodity.

In a similar way, Commodity Goods may be customized by the addition of services that are focused on specific customer needs. The initial suppliers of these customized Goods are well differentiated and are in a position to receive premium payments for their Service. But in time the number of providers of the service increases, the differentiation diminishes, and the focus on Customer needs becomes less relevant and the service becomes a commodity.

Exhibit 3. Traditional (Service) Project Methodology

Traditional (Service) Project Methodology

Pine and Gilmore have looked into current day economic transactions and have found ample evidence of an increasing number of transactions where the buyer is willing to pay a premium price for the experience, over and above the value of the Goods and Services themselves. They have also found evidence of transactions where the Buyer is willing to pay a premium for customized experiences that produce a transformation from one operating state to another. Transformations are unique and cannot be repeated or replicated, and therefore cannot be reduced to a commodity. The addition of Experiences and Transformations complete the Value Chain, and is shown in Exhibit 2.

In summary, increasing value is achieved by customization. Likewise, standardization and mass offerings tend to make an economic offering a commodity. Customization of Services to the unique needs of a customer provides an experience for that customer that is worth premium pricing. This is the basis for the Experience Economy, an environment where customers are willing to pay for the experience, beyond the value of the goods and services alone.

What Does this Mean for Service and Outsourcing Projects?

Service and Outsourcing projects span a large number of endeavors and industry segments. The model described by Pine and Gilmore holds true for nearly all industry segments. In most of today's service projects, a number of vendors are able to provide the same set of services. There is a level of qualification based on capability, but awards are usually made on the basis of the lowest price. This is particularly true in the area of IT services. IT Service Projects are more and more becoming a matter of providing commodity services. There is a degree of customization, but the emphasis is usually on making the least amount of change to the standard offering and competing on price.

In the Experience Economy, the Experience project is one of customizing services to meet unique Customer needs in a way that will provide a memorable experience. The price point is a function of the favorable impact and value of remembering the experience. The attributes for creating favorable and memorable experiences for the Customer include:

•  An indelible impression of the Experience

•  Cues that affirm the nature of the Experience

•  Tangible artifacts of the Experience that the Customer will retain

•  And the Experience will have a value above that of the Goods and Services alone.

Pine and Gilmore offer a final step in the Value Chain. At the top of the value chain are Transformations. These are projects where the Customer aspires to transform to a new state, typically in the IT business, an operational state. The Transformation is achieved by customizing a set of Experiences that guide the Customer in attainment of these aspirations. Attributes of a Transformation project will include:

•  Customized Experiences that are specific and unique to the individual

•  The Transformation can occur only once

•  Transformations cannot become a commodity

•  The Customer does the transformation (the project and project manager are only agents).

Experience and Transformation Projects are a logical extension of Service Projects and only slight modifications to the methodology are needed.

What About the Methodology for Projects in the Experience Economy?

Service projects tend to follow the PDIM (Plan, Design, Implement, and Manage) methodology. The project usually begins with an RFP (Request for Proposal) from the Customer to which the Contractor develops a Proposal; this effort constitutes most of the Planning. If the proposal is accepted, there is a very brief Design Phase where the SOW is updated along with the financials for a negotiated contract. The Implementation Phase is typically short. The Manage Phase continues through the period of the contract and the effort is to deliver the service and continuously improve. This methodology is outlined in Exhibit 3 with some of the key deliverables for each phase.

All Service projects create an experience for the Customer. However, the experiences have not always been favorable and seldom, if ever, planned. Responding to an RFP and moving quickly thorough the Design and Implement phases are not be sufficient to create the framework for an experience of value. The planning that goes into the proposal needs to describe the experience along with the goods and services. The Design phase needs to be replaced with Discovery and Customize phases. The duration of these should be sufficient to gain an understanding of the detailed requirements, but most importantly to understand the sensitivities of the customer so the Experience can be designed and the project Implementation and Operations will provide the required experience. The SOW must describe the Goods, Services, and Processes by which the Goods and Services will be delivered. Scripts that create and/or reinforce the Experience need to be associated with the Customer interfacing steps of the processes. These enhancements to the methodology and the main deliverables for the respective phases are shown in Exhibit 4.

Exhibit 4. Experience Project Methodology

Experience Project Methodology

Exhibit 5. Work Breakdown Structure

Work Breakdown Structure

There is ample evidence that the Experience Economy is developing as seen in the growth of Theme Parks and some of the large focused shopping malls, as enumerated by Pine and Gilmore. The evolution of the IT Service industry into the Experience Economy is not so evident, but there are examples where the methodology is beginning to produce positive results even if the Experience is not designed from the beginning and a premium attached to the value of the experience.

As an example of such an Experience Project, Compaq undertook an engagement with Blue Cross Blue Shield of Michigan (BCBSM). The Work Breakdown Structure (WBS) in Exhibit 5 indicates the suite of services that make up the scope of this project.

Although this project was not designed as an “Experience” project it follows the methodology for an Experience project described above. Many weeks were spent during Discovery and Customization discussing the processes, procedures, nomenclature, and preferences with all level of the Customer's organization. At the end of each day the results were reviewed and used to update the SOW and the financials. When the time came to negotiate a Contract (SOW and T&Cs) there was already substantial agreement. This Discovery phase created a positive experience for the Customer that built relationships, gave confidence, and facilitated a successful Implementation. The Implementation consisted of transitioning the work processes from the Incumbent to Compaq Global Services, and this phase was smoothly executed. This project is currently in the Manage Phase where the experience must be sustained. The experience needs to be sustained on two levels, with the End User and with Management. An indelible impression, cues to affirm, and tangible artifacts are needed for both the End User and Management.

For the End User the indelible impression comes from prompt and courteous service delivered with empathy for the time and disruption the service may have required. The Customer Acceptance of the service event can serve as a cue where the End User is prompted for positive response. Tangible artifacts may be as simple as a business card or an instruction card with “help” instructions. But, whatever the artifact, it should be given on a personal basis with sincerity from the person who performs the service to the End User.

Providing the indelible impressions, cues to affirm, and tangible artifacts for management are the responsibility of the Project Manager. The Project Manager normally has the opportunity to meet with the Customer's management on a periodic basis. At these times, the standard project deliverables should be demonstrated in a way to provide the Indelible Impression and prove the project is in control and issues are known with action plans in place. The project deliverables can provide the impression, cues, and artifacts. These need be supported with routine positive input from the End Users.

Another avenue to sustain the experience is a robust Continuous Improvement process anchored in formal Quality Tools. Guidelines for this may be found in February issue of PM Network, “Quality in Service and Outsourcing Projects,” Max B. Smith, PMP.

Exhibit 6. Transformation Project Methodology

Transformation Project Methodology

Exhibit 7

Exhibit 7

The outstanding question for Service Projects and how they relate to the Experience Economy is, where is the premium payment for the associated experience? I think the answer is, It's coming. Currently, there may be some Service Providers whose delivery and execution is so unique and outstanding that Customers are willing to pay the premium, but they are few. It is more likely that a track record must be built on projects like BCBSM before the value of the experience is apparent. In the near future the value of the experience is more likely to be rewarded by things like short negotiations, efficient implementation, and in Contract renewals without competitive bidding.

And, What About Transformation Projects?

Transformations are at the top of the Value Chain. At first this seems an unlikely place for a project since a transformation is an individual accomplishment, but organizations do require transformations to adjust to changing dynamics of the marketplace. Transformation requires a very serious commitment by the Customer. And, although many may desire to transform to a different state, few have the depth of commitment and capability to do it.

The methodology for a Transformation project must include both the Discovery and the Customization phases as shown in Exhibit 6.

The Discovery Phase needs to define both the aspirations and weaknesses of the Customer in regard to the transformation. Most importantly, the Discovery Phase must determine for the Customer and the Project Team that the transformation is possible. There may be many impediments such as culture, knowledge, processes, resources, or simply lack of adequate time. But these kinds of things need to be exposed and discussed between the Customer and Project Team to determine that the Transformation Project is feasible.

The “Customer is the product” in a Transformation Project and must undergo certain experiences to achieve the desired transformation. The Project Team only facilitates and guides the Customer. The SOW is customized, but must allow for a maximum of flexibility in both Implementation and Manage phases. Schedules and Tracking of progress and financials also need to be setup to allow flexibility. The important thing about Transformation projects is the end result, that is the transformation of the individual to the desired end state. The flexibility is needed to adjust the experiences in real time for each individual, and this will result in a large quantity of changes. It is extremely important for the Project Team and the Client to be alert to the effectiveness of the experiences, processes, goods, and services and introduce changes that will better lead to the desired transformation. The Client will be happy with the changes, including financial impacts, if the changes are contributing to a successful Transformation.

Transformation projects are a new activity, but there is an outstanding example that is currently under way at General Motors where Compaq is providing the Coaches and technology to e-enable GM Executives. This project is summarized very well in an article, “driver's ed, GM executives learn the importance of corporate mentoring. In Reverse,” Daintry Duffy, Darwin, August 2001 issue. The situation was that the Executives of General Motors felt need to become better e-enabled through increasing their personal familiarity and capability with computer technology. As a result of discussions between the Senior Executives of GM and Compaq a project was initiated to transform the Executive Management of GM to a technologically enabled team. Under the direction of the GM IT department, Compaq supplied the services shown in Exhibit 7.

The key element is the Coaching. A Coach was assigned to one or a few GM Executives. The Coaches had to learn the capabilities and weaknesses of their Executives and construct experiences that would guide the Executive through their Transformation. The coaches adjusted their time to meet the Executive's schedule and were on call to support the executive at home or anyplace in the world at any time.

The project management role is primarily one of managing the assets, the Coaches, the progress of the transformation, and the changes. The flexible nature of the project leads to a very fluid environment for the disposition of the assets. Coaches are called upon to go places and do things that could not be anticipated by the initial SOW. These are often best handled by after-the-fact Change Orders. But it is critical that the Changes be kept as current as possible. The Client Organization tends to be supportive of changes and their impact as long as the change process is kept current. The Project Manager is responsible for keeping Changes current as changes also affect the net profitability of the project, hence the cash flow and the margin. Change management is critical!

A Transformation Project starts with subjective requirements and continues in subjective evaluations. The most difficult part of the Project Manager's job is in the area Human Relations. In this example, the Executives are very senior and are time constrained. The Coaches tend to be younger, very capable with technology, and have good interpersonal skills. The relationship between Executives and Coaches can become personal, even extend to the family, and it is an easy step for the Coach to identify more closely with the Executive than the home organization with all of its rules. Matching of Coaches to Executives and monitoring the relationship places an emphasis on Human Relations management that isn't usually seen in project management.

The Project Manager must keep on top of the interactions of the Coaches and be continually alert to potential conflicts and problems. The Project Manager must also continually evaluate the Experiences to assure that they are leading to the desired result, i.e.:

•  Are the cues and artifacts in place and effective?

•  Are scripts effective or should they be changed?

•  Is there tangible evidence that the transformation is progressing?

•  Is there adequate flexibility for the Coaches?

These HR requirements suggest that careful selection of Project Managers as well as Coaches is needed for Transformation Projects and should be supported by additional HR training.


There is ample evidence that economies evolve and that new economies are emerging based on the value of Experiences and Transformations. All projects create and experience for the customer but the focus of Service and Outsourcing projects has been on the delivery of Goods and Services rather than the Experience the service delivery may create. In the emerging Experience and Transformation Economies Customers will expect a memorable experience or successful transformation and will be willing to pay a premium price for these expectations.

Service and Outsourcing project capabilities are especially well situated to move up the Value Chain and deliver Experience and Transformation projects. The methodology for these projects is only a light variation from what is already being practiced with traditional Service and Outsourcing Projects. There are examples of projects that nearly meet the criteria for being Experience projects and we have a fine example of a Transformation project. These are not generally recognized as projects that are higher in the Value Chain, but the recognition will come as project managers become proficient at focusing and delivering on the Experiences. With the recognition will come the premium payment over and above the value of the goods and services.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
October 3–10, 2002 • San Antonio, Texas, USA



Related Content