building customer based project organization

The number of firms using project management has risen dramatically, the number of consultants serving the sector has multiplied, and with them, so has the number of problems confronted

Building Customer-Based Project

Organizations

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Building Customer-Based Project

Organizations

Jeffrey K Pinto Pekka Rouhiainen

Copyright © 2001 by Jeffrey K Pinto and Pekka Rouhiainen All rights reserved.

Published by John Wiley & Sons, Inc

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This title is also available in print as ISBN 0-471-38509-3 (cloth : alk paper)

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For our wives, Mary Beth and Liisa,

with sincerest love and gratitude

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P REFACE

Businesspeople and readers of the popular press are bombarded with a host of new books proclaiming that project management’s time has come Authors cite evidence from

Fortune magazine (proclaiming project management the top career choice for the coming decade),

company after company has adopted project management techniques, growth, professional project management organizations have proliferated in the past five years, and innumerable articles have appeared in both the popular and academic presses extolling the benefits of project management For project managers and project-based organizations, it seems the good times have arrived Right? Well, unfortunately, the answer is still unclear There is no question that project management has received a great deal of attention in recent years The number of firms using project management has risen dramatically, the number of consultants serving the sector has multiplied, and with them, so has the number of problems confronted by project management organizations

Problems? How could that be? With all the hype being generated, new “how to” books coming out every month, and so many organizations now speaking the language of project management, what kind

of problems could there be? Let us briefly consider some of the evidence: Magazine and newspaper articles, as well as recent studies by a variety of consulting firms and academic researchers are suggesting some disturbing signs that the trend toward project management has not come without serious obstacles and counterevidence

Information technology projects continue to fail at astounding rates, approaching 65 percent to 70 percent Firms that have recently adopted project management as their panacea are looking at long lists

of overruns and schedule slippages in these ventures and are quietly, but seriously, rethinking their operating strategies Surprisingly, the same thing seems to be happening within the industries that have long traditions in project management For example, most of the deep-water, oil drilling units that were under construction at the end of the 1990s showed considerable delays and budget overruns Researchers are increasingly decrying the lack of “competence” in project management by so many companies that have jumped on its bandwagon In short, the promised land has not yet been reached In fact, for some firms, Nirvana seems to be actually receding into the distance

Why are these problems occurring? Just how serious are they? Might they not be the expected side effects of any new technology that has been adopted too rapidly, without the proper training and supporting corporate culture? These are all good questions that are at the heart of the problems we are facing If the technology is good, what then is the source of the problems? No one answer is possible There are many sources of difficulties faced by project-based organizations Misunderstanding of the techniques (what they will do and what they will not do), lack of resources and systematic training in project management practices, misunderstanding of project management’s role by top management, unwillingness to commit to its goals by functional department heads, the steady drumbeat of problems continues

We are not offering an analysis of whether or not project management works (it does), or whether or not it begets problems (it certainly does) By and large, this discussion would beg the larger question and miss our key point: Problems illuminate prospects This is not a book about project management

problems, but project management opportunities Our fundamental purpose is not to

point to the problems that exist with project management as it is currently being practiced by a majority

of organizations The far more intriguing question has to do with the opportunities the steady move to project management creates for those companies that have achieved success in their operations And this is the encouraging message that we hope all readers take from this book: In an arena that contains its share of project failures, there are also numerous examples of success How are the firms that make project management ‘‘work” doing it? What is the secret to their success, a success that offers them a real competitive advantage in the marketplace? Where do the real opportunities lie?

We believe that the key lies in refocusing our goals toward the customer Many companies using project management develop severe myopia, focusing exclusively on internal operations and project development They lose sight of the customer, the person, organization, or market for whom the project was originally intended In our research, consulting, and business experiences, we are astonished by the

number of firms that seem to forget this most obvious of points: Who is the client? This is not to imply

that customers are purposefully ignored (although that does occasionally happen), but in the long-run, their customers’ concerns just do not seem to matter that much when they are competing with the activities of the project company “If you build it, they will come,” is a line from the Hollywood movie,

Field of Dreams How many of us work for organizations that have a similar, Field of Dreams

optimism when it comes to new product development? “If we build it, they will come” may sell movie tickets, but it will sell precious few projects

We recognize that our charge that there is a lack of customer focus is liable to raise a few eyebrows Every individual we have ever worked with will resolutely claim that their company is “customer-focused.” And yet, when we start examining the evidence more closely, it leads to some uncomfortable, yet inescapable conclusions

regarding their true level of commitment to the client Does your organization reward its project managers and teams for speed to market or level of sales? Budget adherence or minimal customer start-

up difficulties? Achieving technical specifications or gaining repeat orders due to long-term relationships? In short, is your organization pushing the internal measures of success at the possible expense of the real goal?

One thing we know: People act in ways that maximize their rewards When we complain about a

lack of involvement with the customer or excessive bickering across functional departments, is it due to the reward systems we have put into place and the tacit signals we are sending about what really

matters Where do the customers fit into this equation? Tom Peters, in his landmark book, In Search of

Excellence, got it right a long time ago: It’s all about taking care of our customers If we do not, someone else will

This book is our attempt to suggest ways in which project organizations can get it right We need to clearly articulate the “right” goals that should be motivating our project management The first “right” goal has to be an emphasis on establishing and maintaining long-term relationships with our customers More and more global firms, including General Electric, Ericsson, Nokia, and many others, are taking a long-term look at where the balance lies in creating a healthy climate between suppliers and customers;

what is referred to as the supply chain In managing our supply chains, we start thinking in terms of

stakeholder relations, efficiency, and long-term responsiveness Our goal becomes servicing our chain rather than snapping up short-term profits at the expense of long-term profitability

This book came about as a result of years of working with and observing project-based firms that have been successful through careful management of their customers and suppliers As a result, we have been able to formulate some principles that apply across businesses, work equally well at managing relationships within

organizations or between separate firms, and hold the key to success over time, in which past customers

keep coming back for more Building Customer-Based Project Organizations offers organizations the

key to redefining the focus of their mission, recognizing (perhaps for the first time) what their primary goal must be In this way, they become more efficient, more responsive, and far more profitable Doing

it right consists of doing right by our customers

JEFFREY K PINTO

PEKKA ROUHIAINEN

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A CKNOWLEDGMENTS

We would be remiss if we did not recognize the contributions of numerous people who worked behind the scenes in helping us complete this project Risto Neuvo, managing director at Aker Rauma Offshore in Finland was a key catalyst for the formulation of our ideas This book would never have happened without his enthusiastic support Jeanne Glasser, acquisitions editor at Wiley, was an equally enthusiastic and energetic supporter and was the key to this book ever leaving the drawingboards

Many of our good friends have contributed to the ideas that we developed in this book Special thanks go to Pekka Laxell from Aker Maritime Inc, Professor Markku Pirjeta of Tampere University of Technology, and Ellen Coopersmith from Decision Frameworks in Houston, Texas

For our families, Mary Beth, Emily, AJ, and Joe (for Jeff) and Liisa, Jukka, and Tapio (for Pekka),

we reserve the biggest thank you of all

J.K.P.P.R

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Building Customer-Based Project Organizations

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CHAPTER ONE

During the decade of the 1990s, project management came into its own Firms who had never considered the use of project-based techniques have embraced the process enthusiastically while seasoned project management organizations have continued to refine their practices Professional societies, such as the Project Management Institute and the International Project Management Association, have grown at incredible rates, adding to membership rolls that already stand

at historic highs Project management has become the operational technique of choice in companies as diverse as electronics, information systems development, construction, banking and financial services, insurance, heavy and light manufacturing the list goes on and on

What are the underlying reasons for this explosive growth and interest in project management? Why

is a technique that two decades ago was generally thought of as only useful for construction, aeronautics, and very few other industries suddenly taking the business world by storm? Why is book after book being published extolling the benefits of project management? Why are consulting firms proliferating and companies lining up to board the

bandwagon? The short answer is that these people are recognizing what many savvy firms have long known: Project management offers a unique combination of opportunities and challenges that, properly met, create a tremendous competitive advantage in the globalized marketplace

Consider the current state of business, both in the manufacturing and service sectors, and how project management can help organizations address its challenges We have only to take a cursory look

at the business world to detect some strong trends, including:

1 Shortened product life cycles The good old days when a company could offer a new product

and depend on years of competitive domination are gone Increasingly, the life cycle of new products is measured in terms of months or even weeks, rather than years We have only to look

at new products in electronics or computer hardware and software to easily understand this trend We are seeing similar signs in traditional service sector firms that have also recognized the need for agility in offering and upgrading new services at an increasingly rapid pace

2 Small product launch windows Another issue concerns the nature of opportunity Organizations

are very aware of the dangers of missing the optimum point at which to launch a new product and must take a proactive view toward the timing of product introductions Put another way: While reaping the profits from the successful sale of Product A, canny firms are already plotting the best point at which to produce and launch Product B, either as a product upgrade or as a new offering Because of fierce competition, these optimal launch opportunities are measured in terms

of months Miss one, even by a matter of weeks, and many products become also-rans

3 Increasingly complex and technical products ‘‘The world today is a lot more complicated than

it was in my day.” We hear this refrain all the time And yet, there is a large element of truth in it

The world is more complex Products are more complicated, technically sophisticated, and

difficult to create efficiently The public’s appetite for “the next big thing” continues unabated and substantially unsatiated We want bigger and better, more bells and whistles, larger (or smaller), faster, and more complex than the old model Firms constantly upgrade their product and service lines to feed this hunger That causes nightmares in design and production as we continually seek to push out the edges of the technical envelope Unless companies find a way to maintain control of the process, this “engineering for engineering’s sake” mentality can quickly run out of control

4 Huge influx of global markets In our undergraduate economics courses, we learned the nature

of choices These choices, often called the “guns or butter” decision, were based on a zero-sum assumption of a fixed pie The fixed pie said that there was only so much to go around Choosing more guns meant less butter was available As we enter the new millennium, we see a pie that continues to expand The global economic climate is not one of shrinkage or even zero-sum stability; it represents incredible opportunity on a scale never before imagined During the stock market boom of the 1990s, it was routine for firms to be valued at 70, 80, even 90 times

projected future earnings Analysts took a look at the potential for future development and drew the obvious conclusions: There is a gold mine out there for the companies that can exploit it Project management firms, aiming at market agility while keeping a disciplined hand on costs and development times, are ideally poised to reap the benefits of the global marketplace

5 An economic period marked by low inflation The economic mood in the developing countries

remains highly favorable One of the key indicators of economic health is the fact that inflation has been kept under control In the United States in particular, low inflation has been one of the triggers for the continued economic expansion and stock market boom of the last decade

Unfortunately, low inflation has a challenging side effect for business; it limits their ability to pass along cost increases in order to maintain profitability Jack Welch, former CEO of General

Electric, took a hard look at this problem recently and suggested that when wages are added in,

we are actually in a period of deflation, in which prices are diminishing The implication is that successful companies of the future will be those that increase their profits through streamlining internal processes, saving money by “doing it better” than their competition Project management

is a tool to realize these goals of internal efficiency and profit in a low inflation time

6 General requirement for higher profit from investments In the highly technical world of Internet

companies, the investors are looking for better and faster return on their investment For the industry, this means that there is no time for staying idle, firms have to act fast when they see an opportunity From the project firm’s point of view, this means greater need for flexibility in developing projects faster under greater uncertainty, often learning more about the opportunity while doing In general, project implementation has to take place in a shorter time than it used to which means using a larger number of suppliers and subcontractors Maintaining high standards for safety and quality while at the same time employing methods such as multiple working

hypothesis and concurrent engineering, sets great and often conflicting requirements for the project management

Oil field developments are a good example of this last phenomenon As more and more of the word’s oil is found in the ultra-deep water, the money involved in both oil exploration and development has achieved epic proportions while the risks involved have increased proportionally as well Basically, the

“distorting lens of deep water” requires higher dollar decisions to be made quicker and with less information than ever before As a result, the industry has turned to the use of decision tools, such as decision analysis, to make better decisions faster, recognizing the range of possible outcomes This has led many oil companies to seek flexible field development solutions soon after discovery, rather than delay by gathering more information and “optimizing” their development solution The petroleum industry has finally recognized that no matter how much information is gathered, the final performance

of their oil fields will always be unknown until the last drop of oil is produced Hence, flexible solutions and improved decision processes are changing the way oil companies run their business

These are just a few of the reasons why project management has become so popular in recent years Project management is more than just the latest management fad There is enough evidence of success

to recognize that it really does deliver on its promises sometimes

The fact is, however, that for all the apparent logic behind the use of project management and the success stories that we experience or read about, it is by no means a perfect picture A disturbing trend mirrors the increased use of project management The degree to which new projects, and in some cases industries, are failing is alarming Let us consider some recent research examples, just from the information technology sector, regarding the viability of new projects currently being developed:

l A recent study of over 300 large companies conducted by the consulting firm Peat Marwick found that software and/or hardware development projects fail at the rate of 65 percent In

other words, 65 percent of these companies reported projects that were grossly over budget or behind schedule (up to and over 200 percent), employed technologies that were nonperforming,

or all of the above Perhaps even more distressing, over half of the top managers interviewed considered these results ‘‘normal.”1

l A study by the META group found that more than half of all IT projects become runawaysovershooting their budgets and timetables while failing to deliver fully on their goals.”2

l Applied Data Research surveys report that up to 75 percent of software projects are cancelled.3

l The Standish Group found that of approximately 175,000 projects costing more than $250 billion each year, almost 53 percent will overrun their initial cost estimates by an average of 189 percent Most of these projects will be delivered with less than 75 percent of their original functionality They conclude that the average success rate of business-critical application development projects

is something else at work here?

In a recent book, a noted project management researcher and author, Dr David Frame, decried the lack of competence in our project-based firms.5 Dr Frame knows whereof he speaks: As director of certification for the Project Management Institute for

many years, he has had a ringside seat to the explosive growth in the field He has also observed the classic failure of function to follow form We adopt project management as a competitive tactic without providing sufficient training for our managers or time for the necessary cultural shifts in support of the approach His arguments offer an important perspective in the debate: Is the technique at fault or is it our inability to successfully implement the technique, performing all the steps that effective implementation implies (i.e., training, coaching, phased-sequencing of steps, and culture reshaping)? This book offers an extension to Frame’s argument “Competence” in project-based firms lies not only in getting the process right, but also in knowing the elements comprising the correct process Many firms experience problems with their project activities because they are unintentionally rewarding the wrong things, unwittingly encouraging people to make the wrong choices, mistakenly focusing on inaccurate measures of project performance The key lies in getting the initial project focus right: It is only when we have the correct goals picked out that we begin to see our people working their projects

in an appropriate manner What is the “correct” focus? From our years of experience in researching, consulting on, and managing a wide variety of projects, we are convinced that the correct focus remains squarely on the customer Whether that “customer” is an external market opportunity, a one-shot industry client, or a group internal to your organization, the goal is the same: creating a focus in which the customer takes center stage, critical decisions revolve around their needs, and project managers and their teams are rewarded for the manner in which they satisfy their prime customers

This book is an effort to refocus on the proper target Too many organizations adopt project management for its cost control discipline, using limited budgets and carefully constrained schedules as

a way of maintaining optimum operating discipline There is nothing wrong with recognizing these benefits of project management

The problem is when these controls become an end unto themselves, when the focus, at first subtly and then more overtly, shifts to project management as an internal control mechanism Such an “inward” look creates huge potential and realized problems for projects in the marketplace When we seek to satisfy internal controls of time and budget exclusively, we get what we pay for: projects that often have little attraction for a wide external market

Consider one example: a Fortune 500 computer manufacturer where, during the 1990s, all new projects were initiated by the hardware engineering department These projects rarely were the result of interaction with the marketing function; after all, what can they possibly tell us about computers? In

adopting this Field of Dreams mentality ( If you build it, they will come”), the company went through

several years of declining sales, reorganizations, layoffs, and unattractive product offerings They had refined their internal operations to a fine edge, they hit their launch windows, they kept a lid on costs, and they steadily slipped toward Chapter 11 reorganization

Customer focus is an expression that we find today among the core values of many companies But how

often do we think about what these two words really mean? In refocusing our operating philosophy externally, the floodgates open to a variety of profound issues More to the point, we find that these words generate a follow-on set of questions as we begin to explore their meaning in greater detail What does it mean to be customer focused and what do we do differently when we are focused on our customers? Why do we have to be customer focused, anyway? Finally, can we afford to be focused to our customers and their needs instead of being focused on taking care of our business, or is that actually the same thing?

In this book, we use the term Customer-Based Project Management (Figure 1.1).6 The customer focus is rapidly emerging as the cornerstone of successful project-based business for a variety of reasons, some of which directly follow from our earlier discussion Consider, for example:

l Huge increases in global competition The rapid increases in information processing and

telecommunications have allowed companies worldwide to conduct business in real time across the globe Organizations that previously had a clear sense of the competition are discovering new rivals almost weekly

l Increasing demands for cost-consciousness In a time of economic stability (low inflation),

profits continue to be generated from improvements to internal operations Organizations that become lean and efficient will thrive; the rest will fail

l The need to minimize risk Both parties—the project organization and the customer—have a

strong vested interest in keeping risk manageable The greater the sense of commitment to the development process by all stakeholders, the greater the likelihood of lowering risks for everyone

Figure 1.1 Implementation: Customer Focus and Customer-Based Project Success

It is important to note that customer focus does not mean we are referring exclusively to project

firms dealing with external clients Even within an organization, projects are created with a customer in mind An upgrade to the firm’s information system would involve numerous internal clients The creation and implementation of a new operating philosophy will have an internal customer base Certainly these obvious examples of customer focus tend to refocus our attention externally, as in the case of build-to-order construction or engineering projects, new product introductions, and so forth Nevertheless, our experience points to the fact that a customer-based project management philosophy is fundamentally powerful and compelling regardless of the relationship of the customer to our project team and parent organization

Having a customer focus means shifting from a goal of maximizing our profits in one project by optimizing the utilization of our resources to a goal of superior service to the customer to maximize the value of the customer’s project by meeting the jointly agreed project goals It also implies our willingness to adapt to changes in the customer’s goals during the project development In other words, shifting from suboptimizing the short-term profit in one project to optimizing the total value of the customer’s project, thus ensuring a relationship that maximizes the developer’s profit in the long run

The focus here is key If my focus is short-term, aimed at wringing every last possible dollar of profit

out of a project at the expense of clients, subcontractors, and other relevant stakeholders, I am deliberately sacrificing long-term opportunities On the other hand, if I approach all customer-contractor relationships as potentially long-term and mutually advantageous, I may willingly make short-term decisions that will cost me money in order to maximize the overall value of the project to the client I do this, however, in the interests of building and maintaining a long-term relationship The point is simple: If our sole concern is profit this quarter, then by all

means, we should engage in any confrontational and antagonistic behavior necessary to hit our profit goals, even at the expense of client satisfaction If I seek a healthy relationship with a stable customer base over the long term, I will make the appropriate trade-offs to ensure it remains healthy

Figure 1.2 illustrates a number of points about the nature of customer satisfaction and how we can anticipate and positively influence it This example uses a build-to-order construction project This project time line is simplified to demonstrate only three stages: sales, execution, and operation Further, the contractor has three distinct goals to address: (1) the product that is to be delivered, (2) the project itself that will produce the product, and (3) the relationships with the customer Note that product and relationship concerns already exist at the starting point and continue after the project has been terminated, while project management issues come into play at some point just prior to the contract signing and end at the delivery point

When we follow the three stage life cycle, we can observe some common side effects of each of these

stages on contractor-customer relations Sales refers to the organization’s activities aimed at selling the

client on the project All marketing activities, engineering

Figure 1.2 What Is Customer Satisfaction in Projects?

demonstrations, and financial qualifications are included in this process As a result of the intense wooing of the customer, the customer satisfaction curve is highly positive By the contract signing stage, both parties (contractor and client) are in a very positive mind frame Ironically, almost immediately after the contract signing, the honeymoon has a tendency to end The parties begin arguing over contract terminology, promised deliverables, schedule, and money, as well as a host of other issues Predictably, the customer satisfaction curve takes a swing downward, relations become soured, and a general air of mistrust begins to infect the project development Finally, as the project ramps up toward conclusion, relations take a similar upward trend in anticipation of successful contract completion This happens simply because the job has been done and a certain level of customer satisfaction is necessary to get the project delivered The next fly in the ointment occurs during the final delivery stage At this point, the users get involved and start to operate the product The readiness of the operators to use the product depends on the level of user involvement during the project and the quality of the user documentation and training that has been provided Often these things are overlooked or given less rigorous attention that results in problems with operator satisfaction However, as the operators learn to use the new systems, the level of satisfaction goes up and reaches the final level The end result is, hopefully, a successfully completed project leaving all parties happy The dramatic swings in relationship and customer satisfaction are due to the short-term horizon adopted by the typical project organization Relationships are defined to start at the point a Request for Proposal (RFP) is let and are assumed to conclude when the project has been delivered Every action is discrete and when, concluded, nonrecurring The obvious problem here is that by the time the project is completed, relationships may have become so soured between the firms that the likelihood of future business is impossible This

represents a classic problem of winning the current battle while losing the long-term war When we define project success in terms of our ability to gain every last dollar from an adversarial relationship and when we have to threaten to revert to legal remedies and threats of liquidated damages because of noncompliance, we are creating an atmosphere in which it is impossible to work together with the goal

of providing the client maximum value

In contrast, an approach that focuses on customer satisfaction has the objective of operating within a much narrower range of client attitudes (Figure 1.3) Rather than allowing the satisfaction of the customer to go through the various peaks and valleys across the project’s development and transfer, a customer-based project management philosophy is aimed at maintaining consistently high levels of customer satisfaction This is partially possible because we are usually able to predict in a contractor-client relationship where the high and low points are likely to occur Consequently, we can take proactive steps to manage the points of likely tension to ensure that misunderstandings do not build up

to the point where a

Figure 1.3 Acceptable Variation of Customer Satisfaction

cooperative relationship becomes adversarial The message comes through to the customer as well: We are committed to doing everything necessary to ensure your satisfaction

It is necessary to identify some common themes early in our discussion because we will be using them throughout this book Although most of us have an intuitive understanding of these terms, they form the backbone for our discussion and must be clearly understood

Project Success

Definitions of successful projects can be surprisingly elusive How do we know when a project is successful? When it is profitable? If it comes in on budget? On time? When the technology we are developing works? When we achieve our long-term payback goals? It is ironic that project management continues to have great difficulty in identifying a mutually acceptable and encompassing definition of success Perhaps our difficulties in defining success are similar to Justice Potter Stewart’s oft-quoted description of pornography (“I know it when I see it”) Most of us naturally gravitate toward the

historical definition of the triple constraint in project management; that is, the classic definition of a

project’s goals as comprising time, budget, and performance:

l Time Did the project come in on or before established schedules?

l Cost Did the project get completed within the budget guidelines?

l Performance Did the finished project operate according to specifications?

These three criteria have more recently been joined by a fourth: client acceptance Client acceptance

argues that projects that have been developed according to the triple constraint have a potential to miss the most important hurdle of all, the acceptance and use of the project once completed In the old days, when project management was primarily a construction and heavy industry technique, the overwhelming reason to use it was to maintain internal organizational discipline in expenditures of money and time Under those assumptions, a triple constraint made perfect sense It was focused internally on efficiency and productivity measures, it provided a measure for personnel evaluation, and

it allowed the cost accountants to keep a clear handle on expenses Unfortunately, more recently, the triple constraint has come under increasing pressure as an inadequate measure of project success Including client acceptance as a fourth criterion of success has some obvious benefits First, it refocuses corporate views outside the organization toward the customer Who cares if we are efficient

if all we produce is a lemon? Second, it recognizes that the final arbiter of a successful project is not the cost accountant, but the marketplace Projects are only as good as they are used, either to improve the activities of other parties or to open new avenues of revenue for the company Finally, client acceptance requires project managers and their teams to create an atmosphere of openness and communication throughout the development of the project

Consider the following example: By the late 1970s most American auto makers had hit the skids We were losing market share in huge chunks to foreign car makers, we were making a shoddy product, and

we were no longer appealing to modern standards of taste In this system, a “successful” project (a new car) could be introduced, only to fall flat on its face in terms of sales Ford Motor Company finally got the right idea by scrapping the old methods for design and car development They went back, literally,

to the drawing board and reengaged in a dialogue with their customer base,

including surveying old customers who had switched to buying other brands Through intensive interviews, focus groups, and a willingness to listen to what people were telling them, Ford created the Taurus, a radical departure in design from previous models The Taurus has been a wildly popular car for Ford, spearheading their move in overtaking General Motors as the most profitable auto company in the world during the 1980s and 1990s

What was the key to this success? Clearly, a willingness to reorient their focus toward the customer

In the same way, other project management organizations have begun viewing client acceptance as

more than just an addition to the triple constraint, but as ultimately the necessary condition for project

success

Another model of project success traces its roots back to earlier work from the 1970s in the field of management The proponents, Randy Schultz and Dennis Slevin, argued that successful implementation

of a new system, project, or method within a firm required passing three equally important hurdles:

technical validity, organizational validity, and organizational effectiveness.7 Technical validity asked a simple question: Does the system or project work? Is it a good technical solution to the problem the company faces? If the answer was yes, the project was said to be technically valid The second measure, organizational validity, is concerned with ensuring a fit between the needs of the client and the project:

Is the project appropriate for the client? A project may be an excellent technical solution to a perceived problem and still is not used because it is not right for the client For example, proposing a highly technical solution to a communications problem where the client base has no technical training or aptitude may make technical sense, but simply not fly in the face of workforce limitations Finally, organization effectiveness asks the bottom-line question: What positive impact has the project had, either on the organization’s profitability (in the case of a new product) or the improvement of their operations? Organizational effectiveness is predicated on the

natural assumption that the project is being pursued to show positive outcomes

QC, are well recognized around the world and have become a form of competitive advantage for firms that have achieved the certification Without quality as the foundation, it is impossible to consider other meaningful notions of success Everything else builds on this foundation

The first floor is the infrastructure that is needed to physically produce the different elements of the project This includes design

Figure 1.4 What Are the Basic Elements of Customer-Based Project Success?

and engineering suppliers, materials and components suppliers, manufacturing suppliers, logistics services suppliers, and so on In general, the infrastructure covers all the elements that are needed to make the project physically happen From the project developers’ point of view, it does not make a difference who owns the infrastructure resources, whether they are owned by them or provided by others as an outside service The key to effective control of infrastructure resources is supply chain management Supply chain management gives us an understanding and control of the resources we have

in place to make the project succeed If, in our clients’ evaluation, the infrastructure is substandard or critical elements are missing, it gives them a strong reason to look elsewhere for their work We will be addressing the various components of the supply chain and showing its link to effective project management in following chapters

The second floor is the project management that is needed to run the different elements of the infrastructure and to pull everything together to deliver the product to the customer This includes the people, as well as the systems and procedures This step in the success model requires us to take a critical look at our project management processes, control and administration systems, and people One

of the critical shortages in this new era of project management is a dearth of personnel trained in project management techniques, as well as a cadre of trained project managers

The third and top floor of the model is the customer relationship management that is needed to ensure the technical and organizational validity and organizational effectiveness of the final product This includes the people, systems, and procedures that are needed for the initial definition of the product based on the customer need, as well as adapting the necessary changes in customer needs that are likely to take place over the life of the project Furthermore, this level includes the feedback systems and procedures that are needed to communicate the status and the changes in the project to the

stakeholders in both the project developer and customer organizations to facilitate decision making Based on our definition of customer-based project management, the project organization should shift their focus from maximizing profit in one project by optimizing the use of resources to offering superior service to customers to maximize the value of the customer’s project In making this proposal, we are suggesting an approach that violates one of the basic rules of all business enterprises: concentrating on making profit To be willing to forego short-term profit, the contractor has to be sure that it makes sense in the long run This simply does not happen without good customer relationship management In this approach, the customer and the contractor have to understand one another well The initial project goals and the success drivers, as well as any changes to them during the project’s development, have to

be comprehended by both parties This is why supply chain management is so important: Changes to the project affect not only the contractor organization, but they have a ripple effect through the supply and distribution chains as well Without proper supply chain management, it is impossible to respond rapidly

to changes in the project with minimal disruptions not only to operations but to the operations of the supply chain members

Product Thinking

One term that needs greater explanation is product thinking Product thinking is the result of

conceptualizing the fundamental product we offer another organization or market The product can be based on hardware, software, service, or a combination of these To understand the concept of product thinking, it is necessary to view it from the perspective of the customer That is why organizations marketing consumer products devote so much time and money to conducting consumer surveys, focus groups, niche penetration analysis, and so forth The ability to sell a product that measures up to

customer expectations requires us to look at the project from the customer’s perspective

In the world of global business and tightening competition, only those firms that excel in mastering the details of their business can be highly successful For project developer firms, this means a great challenge through requiring continuous learning and process improvements, usually in very complicated business environments This is where product thinking comes into the picture It helps the firm to focus

on the details that are critical for their success The project firms that adopt the concept of product thinking can more easily build their quality standard, supply chain management, project management, and customer relationship management the successful framework in Figure 1.4

Figure 1.5 presents the product as a combination of the product concept and the delivery process of getting the physical product to the customer The customer is weighing two separate considerations in deciding whether or not to award us the job and then in evaluating our performance First, the customer

is keenly interested in the product concept that we are offering Here the concepts of technical validity,

organizational validity, and organizational effectiveness come

Figure 1.5 What Is Product Thinking in Projects?

into play Is our project technically competent or does it rely on a new and previously unproven technology? Are we proposing an excessive or risky solution? Further, does the product concept we are proposing fit in with the image the organization has of itself and its operations? Are we matching our product concept to the customer or are we foolishly expecting customers to alter themselves to fit it? Finally, does the product concept offer the opportunity for enhanced effectiveness? How do we know? What information or evidence can we offer to allay their concerns about the result of implementing the project?

These first elements are based on anticipating the customer’s concern for the product concept itself Beyond that, it is also necessary to recognize their concern for the way that the product is delivered to them A highly important project that is poorly implemented can do the project developer firm great

harm in the eyes of the client This element is referred to as the delivery process The delivery process

involves the other set of criteria that customers weigh in deciding how to evaluate alternative proposals and ultimately, their satisfaction with the project’s implementation and contractor performance Among the chief concerns of customers relating to the delivery process are the issues of schedule and budget adherence

Project Risk

Risk refers to the degree of uncertainty that the client is willing to undertake in contracting to have a project implemented In simple terms, the forms of risk can be categorized as health, safety, and environmental (HSE) risks; schedule risks; cost risks; and other risks Risk results from several factors Among these are the lack of information about the project organization itself (How reliable are they? Can I trust their estimates and promises?) and about the product concept due to technical complexity (Is it proven technology? Will it work as anticipated? If it doesn’t, how much will