Strategic alignment of project management organizational structure
an analysis of multiple cases
Leandro Alves Patah, MSc, PMP
Siemens Ltda. and University of Sao Paulo
Porter (1996) argues that the strategy's essence remains in choosing the activities to be made in a different way. The strategic planning could be defined as the process of creating and implementing decisions about the organization future (Kerzner 2002). Another concept actually in use is the project management. Today, a management strategy that uses the operational unities to carry out the work, check the efficiency and send information to the senior management, is necessary. The project management methodology could do all this work and is the way chosed by many companies to manage their business critical aspects (Cleland & Ireland 2000). The selection of the correct structure by companies will be strategic in the success of the projects managed by them. The organizational structures models and configurations should be analyzed thinking about general and manufacture strategy's configuration of an organization and your position in the volume-variety matrix (Porter 1979 and Slack et. al. 1997).
With the turbulence of the new economy, in which the change is discontinuous, abrupt and unmanageable, the company that evolves slowly is in the way of extinction (Hamel 2000). Porter (1996) says that the strategy essence remains in choosing activities to be made in a different manner or in the execution of different activities in relation to the competitors. What happens, many times, is that the strategies are not put in operation because they do not arrive until the lower organization's hierarchical levels or because they do not have an ideal medium to implement it. So the strategic planning in a business environment could be defined as the process of creating and implementing decisions about the organization future (Kerzner 2002).
Another concept actually in use is the project management. Today, a management strategy that uses the operational unities to carry out the work, check the efficiency and send information to the senior management, is necessary. The project management methodology could do all this work and is the way chosed by many companies to manage their business critical aspects (Cleland & Ireland 2000). King (1978) says that the projects can unify the strategies and spread them to the corporation areas. Besides that, Platts & Mills (2002) argue that a successful process of creating strategies is more than a sequence of steps; it needs other characteristics, such as a good project management.
There are three basic structures to apply project management concepts inside an organization: the functional structure, the matrix structure and the projectized structure. The PMO (Project Management Office) consists in a structure devoted to the application of the project management concept inside an organization; it could also assume different functions in the company: from a simple group to help to control projects, until a company department that control all the projects managed by the organization.
A well succeed project management require the fulfillment of the lacuna between the company vision and the ongoing projects (Dinsmore 1998).
The main objective of this work is to establish a relation between the better project management structure to an organization and the strategy of the company. The idea is also to verify the more adequate project structure to the strategies of a company. The methodological approach utilized was the case study, made in three different companies.
2. The Project Management
The project management was developed as a leadership concept of interdisciplinary activities with the objective to solve a temporary problem. This characteristic permits the project management to reach a high degree of innovation in the presented solutions to more complex's works (Litke 1995).
The world today works with projects. In the most significant areas of application, new products and services are created through projects, what could be demonstrated by the increasing number of companies that are adopting the project management methodology (Kerzner 2001).
According to the Project Management Institute, PMI (2001) a project could be defined as a temporary endeavor to create a unique product or service and project management could be defined as the art of coordinating activities with the objective to reach the stakeholders expectations.
3. Project Management Structures
In the last thirty years a revolution is occurring in the introduction and development of new organizational structures. The executives realize that the companies should be more dynamics. It means that they should be able to quickly structure themselves as the market requires (Kerzner 2001).
As alternatives to the rigid functional or traditional organizational structure, the projectized and the matrix structures appeared. The matrix structure, a combination of the functional and the projectized, could be divided in weak, balanced and strong matrix.
The functional structure place the project to be managed inside one of the technical departments of the company. So, the project responsible is the functional manager of this department.
According to Kerzner (2001), the great advantage of the projectized organization is that a unique man, the project manager, keeps a complete authority over the project as a whole. Besides that, this kind of structure creates a division inside the company.
The matrix structure combines the functional and the projectized structure to create a hybrid structure with characteristics of the two “mother-structures”. In parallel to the functional structure, under the responsibility of the functional managers, project's groups are created under the responsibility of the project managers. The matrix structure could present itself in different formats: weak matrix structure, balanced matrix structure and strong matrix structure.
4. The PMO – Project Management Office
Among the many project management structures that are used to manage projects nowadays, probably the most successful one is the PMO (Project Management Office). The concept of the PMO appeared in the final of the 50ths and beginning of the 60ths (Kerzner 2002). The PMO is a structure that worries with the application of the project management concepts inside an organization.
The PMO can be defined as an organizational entity established to help the project managers and the project teams in the implementation of the principles, practices, methodologies, tools and techniques of project management (Dai 2001). It presents itself as the most robust structure to conduct the activities of a project (Litke 2002).
The way the project offices are structured in an organization and what they do varies from company to company. However, among the functions of the project offices, there are three main areas: development, support and control. The PMO's implementation can be a challenge, but it is not a new territory. Many organizations, big and small ones, are realizing the benefits that a consistent control over their projects can offer (Hallows 2002).
Besides that, it is necessary to take lots of care not to transform the PMO of a company in a purely bureaucratic department. Burghardt (2000) says that a PMO should not transform itself in a merely paper accumulator and distributor.
4.1. Models of PMO
Dinsmore (1998) proposes five PMO models:
- Autonomous Project Team (APT)
- Project Support Office (PSO)
- Project Management Center of Excellence (PMCOE)
- Program Management Office (PrgMO)
- Chief Project Officer (CPO)
When an organization makes some autonomous projects, the function of project management remains inside the project. The font of information about practices of project management, in this case, comes from the past experience and the project leaders practice. All of the project team's costs are allocated in the project. The organization does not deliver support and all the project management functions are made by the project team. The function of this kind of PMO is to manage the project in all it integrity, so, the total responsibility by the project success remains with the project manager.
The PSO gives the technical and administrative support, tolls and services to lots of project managers simultaneously, helping in the planning phase, in the conduction of scope changes and in the project costs management. Sometimes, people from the PSO are borrowed during the initial phase or along the project life. The responsibility for the project success does not remain with the PSO, but with the project managers that use their services.
The Project Management Center of Excellence is the focal point of experience in projects, but does not accept the responsibility for the project results. It appears as a general overhead expense, which is not allocated directly in the projects. The PMCOE's works is in great part of missionary nature: to disseminate the idea, to convert the incredible, to transform the adopted ones in professionals and to be in charge for the methodologies.
The Program Management Office manages the project managers and is, in last instance, responsible for the project results. In large companies, the PrgMO concentrates its efforts in the priority projects. The other projects are managed by departments and unities, and receive the support of the PrgMO, as necessary. The PrgMO, by nature, comprehends the PMCOE functions and, in some cases, the PSO functions. To works adequately, the PrgMO needs: power, corporate priority and control at the enterprise level.
The CPO responsibility consists in taking care and improving the organization project portfolio, from the business decision stage until the final implementation. Some of the CPO activities that could be presented are: involvement in the business decisions that results in new projects, strategic business planning, establishment of priorities and negotiation of resources to projects, supervision of strategic project implementation, responsibility of project management system in the enterprise level, development of awareness and of project management capacity through the organization, periodical evaluation of projects, including the decision to discontinue projects and management of high level stakeholders, facilitation and mentoring.
5. Corporate Strategy
Challenged by the changes in the markets and because of the aggressive competition, companies learned to be flexible to quickly answer the competition. Searching to gain efficiency, the management best practices were accumulating more importance (Porter 1996).
Porter (1996) argues that, although the operational efficiency is necessary in the competitive scenery, it is not a strategy format and can not replace it. A company can surpass the performance of other competitors only if it can establish a competitive advantage that could be perpetuated. For this, the company should try to deliver value to the client, to create value for itself with the lower costs or make both.
A strategic vision does not means a statically vision of the competitive environment and one company could change its strategy if there is a significant change in the sector's structure. Besides that, choosing a new position should be drive by the ability to make new changes and develop a new system of complementary activities to obtain sustainable advantage.
The focus of this research remains in the alignment of the structures to the role of the project activity inside an organization, creating elements to analyze the decision regarding the more appropriate structure model and the implementation process of the selected one.
So, the methodological option adopted was the multiple study cases, selecting three cases of companies from the following segments: electrical, airspace and automotive. The main elements investigated in the field study was: categorization of the company, the strategical hole of the project management activity, the existed project management structure, the investments in activities related to project management and the categorization of the project teams competencies.
Interviews were made, considering the following aspects:
- Enterprise strategies, focusing in the strategies implementation's process elaborated by these companies;
- Project management, more specifically the project management structures and their main roles and functions.
After the conduction of the interviews, as analysis was made relating the structures functions adopted in the practice by the studied companies, with the functions that, theoretically, were the more appropriated ones to the companies of each business segment, when the strategies would be implemented through a structure of these kinds.
7. The Relationship Between The Project Structures and PMO Models and The Corporate Strategies
The project structures configuration should be analyzed taking in consideration the corporate generic strategy and the manufacture strategy, according the criteria and competitive dimensions, and the localization in the volume-variety matrix (Porter 1979 and Slack et. al. 1997).
According to Carvalho et. al. (2003) it is possible to identify different kinds of organizations in a continuum from projects to continuous process. This continuum can be illustrated by the volume-variety matrix presented in the Exhibit 1. According to Slack (1997), projects are in the limit that the volume is minimal (unique), the variety is maximal (singular) and, the increment of capacity; integration and automation of technology are minimal. So, projects demands differentiate treatments about the management, abilities, techniques and specific tools.
Exhibit 1 – Volume-variety matrix and manufacture strategy. (Font: Slack 1997).
The first analysis to be made is regarding the importance of the project management methodology to the companies. This analysis could be made through the proportion of projects in the gross sales of each company. Higher the proportion, higher is the importance of the project management methodology and the necessity of a PMO's presence. When the proportion of projects is low, the project management methodology could be structured through a functional, matrix or projectized structure.
One second step is, based in the simultaneous analysis of the volume-variety matrix with the different organizational structures; relate them with the manufacture strategies, when we think in a company with low proportion of projects.
The functional structure is better applied to projects managed inside the organizational technical departments. In the projectized structure the project manager keeps a complete authority under the project. The matrix structure creates project groups, under the responsibility of the project managers and uses the same people that belong to the functional sectors. These structures are applied to organizations that manage projects, but do not have the necessity to establish a specific department to project management, as a PMO.
The Exhibit 2 presents the different kinds of project structures distributed in a volume-variety matrix. As mentioned, these structures work well in organizations that manage projects having not an established PMO.
Exhibit 2 – Project management structures distributed in a volume-variety matrix. (Font: Elaborated by the author).
When the proportion of projects is high in a company, the presence of a PMO is extremely necessary.
So, based in the simultaneous analysis of the volume-variety matrix with the models of the existed PMOs, it is possible to make relationships between these structures and the manufacture strategies.
The autonomous project team works well when the project has no great necessity of keeping a large interface with organization's other parts and the company has little experience in projects. The PSOs would be better applied to projects in organizations with manufacture strategy localized between the mass production and the batch, with a great variety of projects being implemented. The PMCOE structure would be better applied in organizations with manufacture strategy localized between the batch and the jobbing production, as well as with a great variety of projects. The PrgMO should be applied only in companies with manufacture strategies exclusive designated to projects, or localized between the manufacture strategy of jobbing and projects. The CPO, should also be applied to large companies with manufacture strategy totally devoted to projects.
The Exhibit 3 presents the PMO models distributed in a volume-variety matrix.
Exhibit 3 – PMOs models localized in a volume-variety matrix. (Font: Elaborated by the author).
8. Results Analysis
8.1. Relationship Between The Structures Models and The Analyzed Companies Strategies
In two of the three companies, project management is very important. To these companies a PMO is a strategic element to manage their projects. These companies are the electrical and the airspace companies.
The airspace company depends too much of projects, producing medium size airplanes. To this company, 100% of its gross sales come from projects. So a project management methodology is extremely important.
To the electrical company, 50% of its gross sales come from projects. The company produces and installs a great variety of telecommunications equipment, in the great majority delivered to customers through specific projects adapted to the necessities of each one. The products innovation tax is extremely high and the products actually sold were developed maximal three years ago. Basically the company sells customized solutions to their customers.
The other company, an automotive one, can manage its projects with a simpler structure. The main sales volume of its company comes from the mass production. A project is necessary only when a new car model or a new factory is necessary.
Based in the interviews made, it was possible to classify the three companies regarding its volume and variety. According to Exhibit 4, it is possible to verify where the companies are positioned between the manufacture strategies.
Exhibit 4 – Distribution of the companies in a volume-variety matrix. (Font: Elaborated by the author).
8.2. Project Structures for the Analyzed Companies
Based in the analysis of the three studied companies, it is possible to conclude that:
- The airspace company has a PMO from the PrgMO model and even a CPO, according to the Dinsmore (1998) classification presented in the topic 4.1 of this work;
- The electrical company has a PMO characterized as a Project Management Center of Excellence (PMCOE), according to the same classification; to this company the PMO is the focal point for project experience, but do not assume the responsibility for the projects results;
- The automobile company structures its projects through functional structures, when necessary.
Though the analysis of the project structures activities from the airspace and automobile companies, it is possible to confirm that the model and the goal of these structures are, in their great majority, the same as stated in the theory.
It is possible to verify that the aspects that characterizes the PMO from the electrical company are almost the same as mentioned by Dinsmore (1998) and presented in the topic 4.1 of this work, for PMOs of the model Project Management Center of Excellence (PMCOE), with special attention to the placement of the project manager outside of the PMO and it non-responsibility of project results. Based in the Exhibits 4 and 5 and in the relationship between the manufacture strategies and the PMO models developed in the topic 7 from this work, it is possible to verify that there is some space to the migration of this company's PMO, actually a PMCOE one, to a PrgMO. This should happen in the future, because the PMO analyzed has just one year of work and, in this first step, it remains working with aspects related to the implementation of the project management concepts inside this organization.
An organizational project structure is a structure that cares about the application of the project management concept inside an organization. It can appear under different models: from a simple isolated group to support a specific project until an important department where all projects are managed. Many organizations, small and big ones, are realizing the benefits generated by the close monitoring of their projects.
Besides that, there are many aspects that should be analyzed before a decision toward a project structure implementation is done. Some of these aspects are: the close involvement of the top management, the functional managers and the project managers and the organization's commitment with the project management methodology and with the benefits that the project structure will bring to the company. The organization of the structure should be linked with the company's strategy. That is a key factor to a successful implementation.
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