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Implementation of Project Management

The first step in the implementation of project management is to recognize the true benefits that can be achieved from using project management. These benefits can be recognized at all levels of the organization. However, each part of the organization can focus on a different benefit and want the project management methodology to be designed for their particular benefit.

Another critical issue is that the entire organization may not end up providing the same level of support for project management. This could delay the final implementation of project management. In addition, there may be some pockets within the organization that are primarily project-driven and will give immediate support to project management, whereas other pockets, which are primarily non–project-driven, may be slow in their acceptance.

Kombs Engineering

In June 1993, Kombs Engineering had grown to a company with $25 million in sales. The business base consisted of two contracts with the U.S. Department of Energy (DOE), one for $15 million and one for $8 million. The remaining $2 million consisted of a variety of smaller jobs for $15,000 to $50,000 each.

The larger contract with DOE was a five-year contract for $15 million per year. The contract was awarded in 1988 and was up for renewal in 1993. DOE had made it clear that, although they were very pleased with the technical performance of Kombs, the follow-on contract must go through competitive bidding by law. Marketing intelligence indicated that DOE intended to spend $10 million per year for five years on the follow-on contract with a tentative award date of October 1993.

On June 21, 1993, the solicitation for proposal was received at Kombs. The technical requirements of the proposal request were not considered to be a problem for Kombs. There was no question in anyone’s mind that on technical merit alone, Kombs would win the contract. The more serious problem was that DOE required a separate section in the proposal on how Kombs would manage the $10 million/year project as well as a complete description of how the project management system at Kombs functioned.

When Kombs won the original bid in 1988, there was no project management requirement. All projects at Kombs were accomplished through the traditional organizational structure. Line managers acted as project leaders.


In July 1993, Kombs hired a consultant to train the entire organization in project management. The consultant also worked closely with the proposal team in responding to the DOE project management requirements. The proposal was submitted to DOE during the second week of August. In September 1993, DOE provided Kombs with a list of questions concerning its proposal. More than 95 percent of the questions involved project management. Kombs responded to all questions.

In October 1993, Kombs received notification that it would not be granted the contract. During a post-award conference, DOE stated that they had no “faith” in the Kombs project management system. Kombs Engineering is no longer in business.


  1. What was the reason for the loss of the contract?
  2. Could it have been averted?
  3. Does it seem realistic that proposal evaluation committees could consider project management expertise to be as important as technical ability?

Williams Machine Tool Company

For eighty-five years, the Williams Machine Tool Company had provided quality products to its clients, becoming the third largest U.S.-based machine tool company by 1990. The company was highly profitable and had an extremely low employee turnover rate. Pay and benefits were excellent.

Between 1980 and 1990, the company’s profits soared to record levels. The company’s success was due to one product line of standard manufacturing machine tools. Williams spent most of its time and effort looking for ways to improve its bread-and-butter product line rather than to develop new products. The product line was so successful that companies were willing to modify their production lines around these machine tools rather than asking Williams for major modifications to the machine tools.

By 1980, Williams Company was extremely complacent, expecting this phenomenal success with one product line to continue for twenty to twenty-five more years. The recession of the early 1990s forced management to realign their thinking. Cutbacks in production had decreased the demand for the standard machine tools. More and more customers were asking for either major modifications to the standard machine tools or a completely new product design.

The marketplace was changing and senior management recognized that a new strategic focus was necessary. However, lower-level management and the work force, especially engineering, were strongly resisting a change. The employees, many of them with over twenty years of employment at Williams Company, refused to recognize the need for this change in the belief that the glory days of yore would return at the end of the recession.


By 1995, the recession had been over for at least two years, yet Williams Company had no new product lines. Revenue was down, sales for the standard product (with and without modifications) were decreasing, and the employees were still resisting change. Layoffs were imminent.

In 1996, the company was sold to Crock Engineering. Crock had an experienced machine tool division of its own and understood the machine tool business. Williams Company was allowed to operate as a separate entity from 1995 to 1996. By 1996, red ink had appeared on the Williams Company balance sheet. Crock replaced all of the Williams senior managers with its own personnel. Crock then announced to all employees that Williams would become a specialty machine tool manufacturer and that the “good old days” would never return. Customer demand for specialty products had increased threefold in just the last twelve months alone. Crock made it clear that employees who would not support this new direction would be replaced.

The new senior management at Williams Company recognized that eighty five years of traditional management had come to an end for a company now committed to specialty products. The company culture was about to change, spearheaded by project management, concurrent engineering, and total quality management.

Senior management’s commitment to product management was apparent by the time and money spent in educating the employees. Unfortunately, the seasoned twenty-year-plus veterans still would not support the new culture. Recognizing the problems, management provided continuous and visible support for project management, in addition to hiring a project management consultant to work with the people. The consultant worked with Williams from 1996 to 2001.

From 1996 to 2001, the Williams Division of Crock Engineering experienced losses in twenty-four consecutive quarters. The quarter ending March 31, 2002, was the first profitable quarter in over six years. Much of the credit was given to the performance and maturity of the project management system. In May 2002, the Williams Division was sold. More than 80 percent of the employees lost their jobs when the company was relocated over 1,500 miles away.

Wynn Computer Equipment (WCE)

In 1965, Joseph Wynn began building computer equipment in a small garage behind his house. By 2002, WCE was a $1 billion a year manufacturing organization employing 900 people. The major success found by WCE has been attributed to the nondegreed workers who have stayed with WCE over the past fifteen years. The nondegreed personnel account for 80 percent of the organization. Both the salary structure and fringe benefit packages are well above the industry average.


In February 2002, the new vice president and general manager made a presentation to his executive staff outlining the strategies he wished to see implemented to improve productivity:

Our objective for the next twelve months is to initiate a planning system with the focus on strategic, developmental, and operational plans that will assure continued success of WCE and support for our broad objectives. Our strategy is a four-step process:

  • To better clarify expectations and responsibility
  • To establish cross-functional goals and objectives
  • To provide feedback and performance results to all employees in each level of management
  • To develop participation through teamwork

The senior staff will merely act as a catalyst in developing long- and shortterm objectives. Furthermore, the senior staff will participate and provide direction and leadership in formulating an integrated manufacturing strategy that is both technology- and human-resources-driven. The final result should be an integrated project plan that will:

  • Push decision making down
  • Trust the decision of peers and people in each organization
  • Eliminate committee decisions

Emphasis should be on communications that will build and convey ownership in the organization and a we approach to surfacing issues and solving problems.

In April 2002, a team of consultants interviewed a cross section of Wynn personnel to determine the “pulse” of the organization. The following information was provided:

  • “We have a terrible problem in telling our personnel (both project and functional) exactly what is expected on the project. It is embarrassing to say that we are a computer manufacturer and we do not have any computerized planning and control tools.”
  • “Our functional groups are very poor planners. We, in the project office, must do the planning for them. They appear to have more confidence in and pay more attention to our project office schedules than to their own.”
  • “We have recently purchased a $65,000 computerized package for planning and controlling. It is going to take us quite a while to educate our people. In order to interface with the computer package, we must use a work breakdown structure. This is an entirely new concept for our people.”
  • “We have a lack of team spirit in the organization. I’m not sure if it is simply the result of poor communications. I think it goes further than that. Our priorities get shifted on a weekly basis, and this produces a demoralizing effect. As a result, we cannot get our people to live up to either their old or new commitments.”
  • “We have a very strong mix of degreed and nondegreed personnel. All new, degreed personnel must ‘prove’ themselves before being officially accepted by the nondegreed personnel. We seem to be splitting the organization down the middle. Technology has become more important than loyalty and tradition and, as a result, the nondegreed personnel, who believe themselves to be the backbone of the organization, now feel cheated. What is a proper balance between experience and new blood?”
  • “The emphasis on education shifts with each new executive. Our nondegreed personnel obviously are paying the price. I wish I knew what direction the storm is coming from.”
  • “My department does not have a database to use for estimating. Therefore, we have to rely heavily on the project office for good estimating. Anyway, the project office never gives us sufficient time for good estimating so we have to ask other groups to do our scheduling for us.”
  • “As line manager, I am caught between the rock and the hard spot. Quite often, I have to act as the project manager and line manager at the same time. When I act as the project manager I have trouble spending enough time with my people. In addition, my duties also include supervising outside vendors at the same time.”
  • “My departmental personnel have a continuous time management problem because they are never full-time on any one project, and all of our projects never have 100 percent of the resources they need. How can our people ever claim ownership?”
  • “We have trouble in conducting up-front feasibility studies to see if we have a viable product. Our manufacturing personnel have poor interfacing with advanced design.”
  • “If we accept full project management, I’m not sure where the project managers should report. Should we have one group of project managers for new processes/products and a second group for continuous (or old) processes/products? Can both groups report to the same person?”

The Reluctant Workers

Tim Aston had changed employers three months ago. His new position was project manager. At first he had stars in his eyes about becoming the best project manager that his company had ever seen. Now, he wasn’t sure if project management was worth the effort. He made an appointment to see Phil Davies, director of project management.

Tim Aston: “Phil, I’m a little unhappy about the way things are going. I just can’t seem to motivate my people. Every day, at 4:30 P.M., all of my people clean off their desks and go home. I’ve had people walk out of late afternoon team meetings because they were afraid that they’d miss their car pool. I have to schedule morning team meetings.”

Phil Davies: “Look, Tim. You’re going to have to realize that in a project environment, people think that they come first and that the project is second. This is a way of life in our organizational form.”

Tim Aston: “I’ve continually asked my people to come to me if they have problems. I find that the people do not think that they need help and, therefore, do not want it. I just can’t get my people to communicate more.”

Phil Davies: “The average age of our employees is about forty-six. Most of our people have been here for twenty years. They’re set in their ways. You’re the first person that we’ve hired in the past three years. Some of our people may just resent seeing a thirty-year-old project manager.”

Tim Aston: “I found one guy in the accounting department who has an excellent head on his shoulders. He’s very interested in project management. I asked his boss if he’d release him for a position in project management, and his boss just laughed at me, saying something to the effect that as long as that guy is doing a good job for him, he’ll never be released for an assignment elsewhere in the company. His boss seems more worried about his personal empire than he does in what’s best for the company.

“We had a test scheduled for last week. The customer’s top management was planning on flying in for firsthand observations. Two of my people said that they had programmed vacation days coming, and that they would not change, under any conditions. One guy was going fishing and the other guy was planning to spend a few days working with fatherless children in our community. Surely, these guys could change their plans for the test.”

Phil Davies: “Many of our people have social responsibilities and outside interests. We encourage social responsibilities and only hope that the outside interests do not interfere with their jobs.

“There’s one thing you should understand about our people. With an average age of forty-six, many of our people are at the top of their pay grades and have no place to go. They must look elsewhere for interests. These are the people you have to work with and motivate. Perhaps you should do some reading on human behavior.”

Hyten Corporation

On June 5, 1998, a meeting was held at Hyten Corporation, between Bill Knapp, director of sales, and John Rich, director of engineering. The purpose of the meeting was to discuss the development of a new product for a special customer application. The requirements included a very difficult, tight-time schedule. The key to the success of the project would depend on timely completion of individual tasks by various departments.

Bill Knapp: “The Business Development Department was established to provide coordination between departments, but they have not really helped. They just stick their nose in when things are going good and mess everything up. They have been out to see several customers, giving them information and delivery dates that we can’t possibly meet.”

John Rich: “I have several engineers who have MBA degrees and are pushing hard for better positions within engineering or management. They keep talking that formal project management is what we should have at Hyten. The informal approach we use just doesn’t work all the time. But I’m not sure that just any type of project management will work in our division.”

Knapp: “Well, I wonder who Business Development will tap to coordinate this project? It would be better to get the manager from inside the organization instead of hiring someone from outside.”

Exhibit I. Organizational chart of the automotive division, Hyten Corporation

Hyten Corporation Organizational chart of the automotive division


Hyten Company was founded in 1982 as a manufacturer of automotive components. During the Gulf War, the company began manufacturing electronic components for the military. After the war, Hyten continued to prosper.

Hyten became one of the major component suppliers for the Space Program, but did not allow itself to become specialized. When the Space Program declined, Hyten developed other product lines, including energy management, building products, and machine tools, to complement their automotive components and electronics fields.

Hyten has been a leader in the development of new products and processes. Annual sales are in excess of $600 million. The Automotive Components Division is one of Hyten’s rapidly expanding business areas (see the organizational chart in Exhibit I).


The management of both the Automotive Components Division and the Corporation itself is young and involved. Hyten has enjoyed a period of continuous growth over the past fifteen years as a result of careful planning and having the right people in the right positions at the right time. This is emphasized by the fact that within five years of joining Hyten, every major manager and division head has been

promoted to more responsibility within the corporation. The management staff of the Automotive Components Division has an average age of forty and no one is over fifty. Most of the middle managers have MBA degrees and a few have Ph.D.s. Currently, the Automotive Components Division has three manufacturing plants at various locations throughout the country. Central offices and most of the nonproduction functions are located at the main plant. There has been some effort by past presidents to give each separate plant some minimal level of purchasing, quality, manufacturing engineering and personnel functions.


The Automotive Components Division of Hyten Corporation has an informal system of project management. It revolves around each department handling their own functional area of a given product development or project. Projects have been frequent enough that a sequence of operations has been developed to take a new product from concept to market. Each department knows its responsibilities and what it must contribute to a project.

A manager within the Business Development Department assumes informal project coordination responsibility and calls periodic meetings of the department heads involved. These meetings keep everyone advised of work status, changes to the project, and any problem areas. Budgeting of the project is based on the cost analysis developed after the initial design, while funding is allocated to each functional department based on the degree of its involvement. Funding for the initial design phase is controlled through business development. The customer has very little control over the funding, manpower, or work to be done. The customer, however, dictates when the new product design must be available for integration into the vehicle design, and when the product must be available in production quantities.


The Business Development Department, separate from Marketing/Sales, functions as a steering group for deciding which new products or customer requests are to be pursued and which are to be dropped. Factors which they consider in making these decisions are: (1) the company’s long- and short-term business plans, (2) current sales forecasts, (3) economic and industry indicators, (4) profit potential, (5) internal capabilities (both volume and technology), and (6) what the customer is willing to pay versus estimated cost.

Introduction of Formal Project Management at Hyten Corporation

The duties of Business Development also include the coordination of a project or new product from initial design through market availability. In this capacity, they have no formal authority over either functional managers or functional employees. They act strictly on an informal basis to keep the project moving, give status reports, and report on potential problems. They are also responsible for the selection of the plant that will be used to manufacture the product.

The functions of Business Development were formerly handled as a joint staff function where all the directors would periodically meet to formulate short range plans and solve problems associated with new products. The department was formally organized three years ago by the then-38-year-old president as a recognition of the need for project management within the Automotive Components Division.

Manpower for the Business Development Department was taken from both outside the company and from within the division. This was done to honor the Corporation’s commitment to hire people from the outside only after it was determined that there were no qualified people internally (an area that for years has been a sore spot to the younger managers and engineers).

When the Business Development Department was organized, its level of authority and responsibility was limited. However, the Department’s authority and responsibility have subsequently expanded, though at a slow rate. This was done so as not to alienate the functional managers who were concerned that project management would undermine their “empire.”


On July 10, 1998, Wilbur Donley was hired into the Business Development Department to direct new product development efforts. Prior to joining Hyten, he worked as project manager with a company that supplied aircraft hardware to the government. He had worked both as an assistant project manager and as a project manager for five years prior to joining Hyten.

Shortly after his arrival, he convinced upper management to examine the idea of expanding the Business Development group and giving them responsibility for formal project management. An outside consulting firm was hired to give an in-depth seminar on project management to all management and supervisor employees in the Division.

Prior to the seminar, Donley talked to Frank Harrel, manager of quality and reliability, and George Hub, manager of manufacturing engineering, about their problems and what they thought of project management.

Frank Harrel is thirty-seven years old, has an MBA degree, and has been with Hyten for five years. He was hired as an industrial engineer and three years ago was promoted to manager of quality and reliability. George Hub is forty-five years old and has been with Hyten for twelve years as manager of manufacturing engineering.

Wilbur Donley: “Well, Frank, what do you see as potential problems to the timely completion of projects within the Automotive Components Division?”

Frank Harrel: “The usual material movement problems we always have. We monitor all incoming materials in samples and production quantities, as well as in-process checking of production and finished goods on a sampling basis. We then move to 100 percent inspection if any discrepancies are found. Marketing and Manufacturing people don't realize how much time is required to inspect for either internal or customer deviations. Our current manpower requires that schedules be juggled to accommodate 100 percent inspection levels on ‘hot items.’ We seem to be getting more and more items at the last minute that must be done on overtime.”

Donley: “What are you suggesting? A coordination of effort with marketing, purchasing, production scheduling, and the manufacturing function to allow your department to perform their routine work and still be able to accommodate a limited amount of high-level work on ‘hot’ jobs?”

Harrel: “Precisely, but we have no formal contact with these people. More open lines of communication would be of benefit to everyone.”

Donley: “We are going to introduce a more formal type of project management than has been used in the past so that all departments who are involved will actively participate in the planning cycle of the project. That way they will remain aware of how they affect the function of other departments and prevent overlapping of work. We should be able to stay on schedule and get better cooperation.”

Harrel: “Good, I’ll be looking forward to the departure from the usual method of handling a new project. Hopefully, it will work much better and result in fewer problems.”

Donley: “How do you feel, George, about improving the coordination of work among various departments through a formal project manager?”

George Hub: “Frankly, if it improves communication between departments, I’m all in favor of the change. Under our present system, I am asked to make estimates of cost and lead times to implement a new product. When the project begins, the Product Design group starts making changes that require new cost figures and lead times. These changes result in cost overruns and in not meeting schedule dates. Typically, these changes continue right up to the production start date. Manufacturing appears to be the bad guy for not meeting the scheduled start date. We need someone to coordinate the work of various departments to Personnel Department’s View of Project Management

prevent this continuous redoing of various jobs. We will at least have a chance at meeting the schedule, reducing cost, and improving the attitude of my people.”



After the seminar on project management, a discussion was held between Sue Lyons, director of personnel, and Jason Finney, assistant director of personnel. The discussion was about changing the organization structure from informal project management to formal project management.

Sue Lyons: “Changing over would not be an easy road. There are several matters to be taken under consideration.”

Jason Finney: “I think we should stop going to outside sources for competent people to manage new projects that are established within Business Development. There are several competent people at Hyten who have MBA’s in Systems/Project Management. With that background and their familiarity with company operations, it would be to the company’s advantage if we selected personnel from within our organization.”

Lyons: “Problems will develop whether we choose someone form inside the company or from an outside source.”

Finney: “However, if the company continues to hire outsiders into Business Development to head new projects, competent people at Hyten are going to start filtering to places of new employment.”

Lyons: “You are right about the filtration. Whoever is chosen to be a project manager must have qualifications that will get the job done. He or she should not only know the technical aspect behind the project, but should also be able to work with people and understand their needs. Project managers have to show concern for team members and provide them with work challenge. Project managers must work in a dynamic environment. This often requires the implementation of change. Project managers must be able to live with change and provide necessary leadership to implement the change. It is the project manager’s responsibility to develop an atmosphere to allow people to adapt to the changing work environment.

“In our department alone, the changes to be made will be very crucial to the happiness of the employees and the success of projects. They must feel they are being given a square deal, especially in the evaluation procedure. Who will do the evaluation? Will the functional manager be solely responsible for the evaluation when, in fact, he or she might never see the functional employee for the duration of a project? A functional manager cannot possibly keep tabs on all the functional employees who are working on different projects.”

Finney: “Then the functional manager will have to ask the project managers for evaluation information.”

Lyons: “I can see how that could result in many unwanted situations. To begin with, say the project manager and the functional manager don't see eye to eye on things. Granted, both should be at the same grade level and neither one has authority over the other, but let’s say there is a situation where the two of them disagree as to either direction or quality of work. That puts the functional employee in an awkward position. Any employee will have the tendency of bending toward the individual who signs his or her promotion and evaluation form. This can influence the project manager into recommending an evaluation below par regardless of how the functional employee performs. There is also the situation where the employee is on the project for only a couple of weeks, and spends most of his or her time working alone, never getting a chance to know the project manager. The project manager will probably give the functional employee an average rating, even though the employee has done an excellent job. This results from very little contact. Then what do you do when the project manager allows personal feelings to influence his or her evaluation of a functional employee? A project manager who knows the functional employee personally might be tempted to give a strong or weak recommendation, regardless of performance.”

Finney: “You seem to be aware of many difficulties that project management might bring.”

Lyons: “Not really, but I’ve been doing a lot of homework since I attended that seminar on project management. It was a good seminar, and since there is not much written on the topic, I’ve been making a few phone calls to other colleagues for their opinions on project management.”

Finney: “What have you learned from these phone calls?”

Lyons: “That there are more personnel problems involved. What do you do in this situation? The project manager makes an excellent recommendation to the functional manager. The functional employee is aware of the appraisal and feels he or she should be given an above average pay increase to match the excellent job appraisal, but the functional manager fails to do so. One personnel manager from another company incorporating project management ran into problems when the project manager gave an employee of one grade level responsibilities of a higher grade level. The employee did an outstanding job taking on the responsibilities of a higher grade level and expected a large salary increase or a promotion.”

Finney: “Well, that’s fair, isn’t it?”

Personnel Department’s View of Project Management

Lyons: “Yes, it seems fair enough, but that’s not what happened. The functional manager gave an average evaluation and argued that the project manager had no business giving the functional employee added responsibility without first checking with him. So, then what you have is a disgruntled employee ready to seek employment elsewhere. Also, there are some functional managers who will only give above-average pay increases to those employees who stay in the functional department and make that manager look good.”

Lyons: “Right now I can see several changes that would need to take place. The first major change would have to be attitudes toward formal project management and hiring procedures. We do have project management here at Hyten but on an informal basis. If we could administer it formally, I feel we could do the company a great service. If we seek project managers from within, we could save on time and money. I could devote more time and effort on wage and salary grades and job descriptions. We would need to revise our evaluation forms—presently they are not adequate. Maybe we should develop more than one evaluation form: one for the project manager to fill out and give to the functional manager, and a second form to be completed by the functional manager for submission to Personnel.”

Finney: “That might cause new problems. Should the project manager fill out his or her evaluation during or after project completion?”

Lyons: “It would have go be after project completion. That way an employee who felt unfairly evaluated would not feel tempted to screw up the project. If an employee felt the work wasn’t justly evaluated, that employee might decide not to show up for a few days—these few days of absence could be most crucial for timely project completion.”

Finney: “How will you handle evaluation of employees who work on several projects at the same time? This could be a problem if employees are really enthusiastic about one project over another. They could do a terrific job on the project they are interested in and slack off on other projects. You could also have functional people working on departmental jobs but charging their time to the project overhead. don't we have exempt and nonexempt people charging to projects?”

Lyons: “See what I mean? We can’t just jump into project management and expect a bed of roses. There will have to be changes. We can’t put the cart before the horse.”

Finney: “I realize that, Sue, but we do have several MBA people working here at Hyten who have been exposed to project management. I think that if we start putting our heads together and take a systematic approach to this matter, we will be able to pull this project together nicely.”

Lyons: “Well, Jason, I’m glad to see that you are for formal project management. We will have to approach top management on the topic. I would like you to help coordinate an equitable way of evaluating our people and to help develop the appropriate evaluation forms.”



The general manager arranged through the personnel department to interview various managers on a confidential basis. The purpose of the interview was to evaluate the overall acceptance of the concept of formal project management. The answers to the question, “How will project management affect your department?” were as follows:

Frank Harrel, quality and reliability manager

Project management is the actual coordination of the resources of functional departments to achieve the time, cost, and performance goals of the project. As a consequence, personnel interfacing is an important component toward the success of the project. In terms of quality control, it means less of the attitude of the structured workplace where quality is viewed as having the function of finding defects and, as a result, is looked upon as a hindrance to production. It means that the attitude toward quality control will change to one of interacting with other departments to minimize manufacturing problems. Project management reduces suboptimization among functional areas and induces cooperation. Both company and department goals can be achieved. It puts an end to the “can’t see the forest for the trees” syndrome.

Harold Grimes, plant manager

I think that formal project management will give us more work than longterm benefits. History indicates that we hire more outside people for new positions than we promote from within. Who will be hired into these new project management jobs? We are experiencing a lot of backlash from people who are required to teach new people the ropes. In my opinion, we should assign inside MBA graduates with project management training to head up projects and not hire an outsider as a formal project manager. Our present system would work fine if inside people were made the new managers in the Business Development Department.

Herman Hall, director of MIS

I have no objections to the implementation of formal project management in our company. I do not believe, however, that it will be possible to provide the reports needed by this management structure for several years. This is

Project Management as Seen by the Various Departments

due to the fact that most of my staff are deeply involved in current projects. We are currently working on the installation of minicomputers and on-line terminals throughout the plant. These projects have been delayed by the late arrival of new equipment, employee sabotage, and various start-up problems. As a result of these problems, one group admits to being six months behind schedule and the other group, although on schedule, is 18 months from their scheduled completion date. The rest of the staff currently assigned to maintenance projects consists of two systems analysts who are nearing retirement and two relatively inexperienced programmers. So, as you can readily see, unless we break up the current project teams and let those projects fall further behind schedule, it will be difficult at this time to put together another project team

The second problem is that even if I could put together a staff for the project, it might take up to two years to complete an adequate information system. Problems arise from the fact that it will take time to design a system that will draw data from all the functional areas. This design work will have to be done before the actual programming and testing could be accomplished. Finally, there would be a debugging period when we receive feedback from the user on any flaws in the system or enhancements that might be needed. We could not provide computer support to an “overnight” change to project management.

Bob Gustwell, scheduling manager

I am happy with the idea of formal project management, but I do see some problems implementing it. Some people around here like the way we do things now. It is a natural reaction for employees to fight against any changes in management style.

But don't worry about the scheduling department. My people will like the change to formal project management. I see this form of management as a way to minimize, of not eliminate, schedule changes. Better planning on the part of both department and project managers will be required, and the priorities will be set at corporate level. You can count on our support because I’m tired of being caught between production and sales.

John Rich, director of engineering

It seems to me that project management will only mess things up. We now have a good flowing chain of command in our organization. This new matrix will only create problems. The engineering department, being very technical, just can’t take direction from anyone outside the department. The project office will start to skimp on specifications just to save time and dollars. Our products are too technical to allow schedules and project costs to affect engineering results.

Bringing in someone from the outside to be the project manager will make things worse. I feel that formal project management should not be implemented at Hyten. Engineering has always directed the projects, and we should keep it that way. We shouldn’t change a winning combination.

Fred Kuncl, plant engineering

I’ve thought about the trade-offs involved in implementing formal project management at Hyten and feel that plant engineering cannot live with them. Our departmental activities are centered around highly unpredictable circumstances, which sometimes involve rapidly changing priorities related to the production function. We in plant engineering must be able to respond quickly and appropriately to maintenance activities directly related to manufacturing activities. Plant engineering is also responsible for carrying out critical preventive maintenance and plant construction projects.

Project management would hinder our activities because project management responsibilities would burden our manpower with additional tasks. I am against project management because I feel that it is not in the best interest of Hyten. Project management would weaken our department’s functional specialization because it would require cross-utilization of resources, manpower, and negotiation for the services critical to plant engineering.

Bill Knapp, director of marketing

I feel that the seminar on formal project management was a good one. Formal project management could benefit Hyten. Our organization needs to focus in more than one direction at all times. In order to be successful in today’s market, we must concentrate on giving all our products sharp focus. Formal project management could be a good way of placing individual emphasis on each of the products of our company. Project management would be especially advantageous to us because of our highly diversified product lines. The organization needs to efficiently allocate resources to projects, products, and markets. We cannot afford to have expensive resources sitting idle. Crossutilization and the consequent need for negotiation ensures that resources are used efficiently and in the organization’s best overall interest.

We can’t afford to continue to carry on informal project management in our business. We are so diversified that all of our products can’t be treated alike. Each product has different needs. Besides, the nature of a team effort would strengthen our organization.

Stanley Grant, comptroller

In my opinion, formal project management can be profitably applied in our organization. Management should not, however, expect that project management would gain instant acceptance by the functional managers and functional employees, including the finance department personnel.

The implementation of formal project management in our organization would have an impact on our cost control system and internal control system, as well.

In the area of cost control, project cost control techniques have to be formalized and installed. This would require the accounting staff to: (1) break comprehensive cost summaries into work packages, (2) prepare commitment reports for “technical decision makers,” (3) approximate report data


and (4) concentrate talent on major problems and opportunities. In project management, cost commitments on a project are made when various functional departments, such as engineering, manufacturing and marketing, make technical decisions to take some kind of action. Conventional accounting reports do not show the cost effects of these technical decisions until it is too late to reconsider. We would need to provide the project manager with cost commitment reports at each decision state to enable him or her to judge when costs are getting out of control. Only by receiving such timely cost commitment reports, could the project manager take needed corrective actions and be able to approximate the cost effect of each technical decision. Providing all these reports, however, would require additional personnel and expertise in our department.

In addition, I feel that the implementation of formal project management would increase our responsibilities in finance department. We would need to conduct project audits, prepare periodic comparisons of actual versus projected costs and actual versus programmed manpower allocation, update projection reports and funding schedules, and sponsor cost improvement programs.

In the area of internal control, we will need to review and modify our existing internal control system to effectively meet our organization’s goals related to project management. A careful and proper study and evaluation of existing internal control procedures should be conducted to determine the extent of the tests to which our internal auditing procedures are to be restricted. A thorough understanding of each project we undertake must be required at all times.

I’m all in favor of formal project management, provided management would allocate more resources to our department so we could maintain the personnel necessary to perform the added duties, responsibilities, and expertise required.

After the interviews, Sue Lyons talked to Wilbur Donley about the possibility of adopting formal project management. As she put it,

You realize that regardless of how much support there is for formal project management, the general manager will probably not allow us to implement it for fear it will affect the performance of the Automotive Components Division.


  1. What are some of the major problems facing the management of Hyten inaccepting formalized project management? (Include attitude problems/personality problems.)
  2. Do any of the managers appear to have valid arguments for their beliefs as to why formal project management should not be considered?
  3. Are there any good reasons why Hyten should go to formal project management?
  4. Has Hyten taken a reasonable approach toward implementing formal project management?
  5. Has Hyten done anything wrong?
  6. Should formal project management give employees more room for personal growth?
  7. Will formalized project management make it appear as though business development has taken power away from other groups?
  8. Were the MBAs exposed to project management?
  9. Were the organizational personnel focusing more on the problems (disadvantages) or advantages of project management?
  10. What basic fears do employees have in considering organizational change to formal project management?
  11. Must management be sold on project management prior to implementation?
  12. Is it possible that some of the support groups cannot give immediate attention to such an organizational change?
  13. Do functional managers risk a loss of employee loyalty with the new change?
  14. What recommendations would you make to Hyten Corporation?
  15. Is it easier or more difficult to implement a singular methodology for project management after the company has adopted formal project management rather than informal project management?
  16. Is strategic planning for project management easier or more difficult to perform with formal project management in place?

Macon, Inc.

Macon was a fifty-year-old company in the business of developing test equipment for the tire industry. The company had a history of segregated departments with very focused functional line managers. The company had two major technical departments: mechanical engineering and electrical engineering. Both departments reported to a vice president for engineering, whose background was always mechanical engineering. For this reason, the company focused all projects from a mechanical engineering perspective. The significance of the test equipment’s electrical control system was often minimized when, in reality, the electrical control systems were what made Macon’s equipment outperform that of the competition.

Because of the strong autonomy of the departments, internal competition existed. Line managers were frequently competing with one another rather than focusing on the best interest of Macon. Each would hope the other would be the cause for project delays instead of working together to avoid project delays altogether. Once dates slipped, fingers were pointed and the problem would worsen over time.

One of Macon’s customers had a service department that always blamed engineering for all of their problems. If the machine was not assembled correctly, it was engineering’s fault for not documenting it clearly enough. If a component failed, it was engineering’s fault for not designing it correctly. No matter what problem occurred in the field, customer service would always put the blame on engineering.


As might be expected, engineering would blame most problems on production claiming that production did not assemble the equipment correctly and did not maintain the proper level of quality. Engineering would design a product and then throw it over the fence to production without ever going down to the manufacturing floor to help with its assembly. Errors or suggestions reported from production to engineering were being ignored. Engineers often perceived the assemblers as incapable of improving the design.

Production ultimately assembled the product and shipped it out to the customer. Oftentimes during assembly the production people would change the design as they saw fit without involving engineering. This would cause severe problems with documentation. Customer service would later inform engineering that the documentation was incorrect, once again causing conflict among all departments.

The president of Macon was a strong believer in project management. Unfortunately, his preaching fell upon deaf ears. The culture was just too strong. Projects were failing miserably. Some failures were attributed to the lack of sponsorship or commitment from line managers. One project failed as the result of a project leader who failed to control scope. Each day the project would fall further behind because work was being added with very little regard for the project’s completion date. Project estimates were based upon a “gut feel” rather than upon sound quantitative data.

The delay in shipping dates was creating more and more frustration for the customers. The customers began assigning their own project managers as “watchdogs” to look out for their companies’ best interests. The primary function of these “watchdog” project managers was to ensure that the equipment purchased would be delivered on time and complete. This involvement by the customers was becoming more prominent than ever before.

The president decided that action was needed to achieve some degree of excellence in project management. The question was what action to take, and when.


  1. Where will the greatest resistance for excellence in project management come from?
  2. What plan should be developed for achieving excellence in project management?
  3. How long will it take to achieve some degree of excellence?
  4. Explain the potential risks to Macon if the customer’s experience with project management increases while Macon’s knowledge remains stagnant.

Continental Computer Corporation

“We have a unique situation here at Continental,” remarked Ed White, Vice President for Engineering.

We have three divisions within throwing distance of one another, and each one operates differently. This poses a problem for us at corporate headquarters because career opportunities and administrative policies are different in each division. Now that we are looking at project management as a profession, how do we establish uniform career path opportunities across all divisions?

Continental Computer Corporation (CCC) was a $9 billion a year corporation with worldwide operations encompassing just about every aspect of the computer field. The growth rate of CCC had exceeded 13 percent per year for the last eight years, primarily due to the advanced technology developed by their Eton Division, which produces disk drives. Continental is considered one of the “giants” in computer technology development, and supplies equipment to other computer manufacturers.

World headquarters for CCC is in Concord, Illinois, a large suburb northwest of Chicago in the heart of Illinois’s technology center. In addition to corporate headquarters, there are three other divisions: the Eton Division, which manufactures disk drives, the Lampco Division, which is responsible for Department of Defense (DoD) contracts such as for military application, satellites, and so on, and the Ridge Division, which is the primary research center for peripherals and terminals.

According to Ed White:

Our major problems first began to surface during the early nineties. When we restructured our organization, we assumed that each division would operate as a separate entity (i.e., strategic business unit) without having to communicate with one another except through corporate headquarters. Therefore, we permitted each of our division vice presidents and general managers to set up whatever organizational structure they so desired in order to get the work accomplished. Unfortunately, we hadn’t considered the problem of coordinating efforts between sister divisions because some of our large projects demanded this.

The Lampco Division is by far the oldest, having been formed in 1989. The Lampco Division produces about $2 billion worth of revenue each year from DoD funding. Lampco utilizes a pure matrix structure. Our reason for permitting the divisions to operate independently was cost reporting. In the Lampco Division, we must keep two sets of books: one for government usage and one for internal control. This was a necessity because of DoD’s requirement for earned value reporting on our large, cost-reimbursable contracts. It has taken us about five years or so to get used to this idea of multiple information systems, but now we have it well under control.

We have never had to lay people off in the Lampco Division. Yet, our computer engineers still feel that a reduction in DoD spending may cause massive layoffs here. Personally, I’m not worried. We’ve been through lean and fat times without having to terminate people.

The big problem with the Lampco Division is that because of the technology developed in some of our other divisions, Lampco must subcontract out a good portion of the work (to our other divisions). Not that Lampco can’t do it themselves, but we do have outstanding R&D specialists in our other divisions.

We have been somewhat limited in the salary structure that we can provide to our engineers. Our computer engineers in the Lampco Division used to consider themselves as aerospace engineers, not computer engineers, and were thankful for employment and reasonable salaries. But now the Lampco engineers are communicating more readily with our other divisions and think that the grass is greener in these other divisions. Frankly, they’re right. We’ve tried to institute the same wage and salary program corporate-wide, but came up with problems. Our engineers, especially the younger ones who have been with us five or six years, are looking for management positions. Almost all of our management positions in engineering are filled with people between thirty-five and forty years of age. This poses a problem in that there is no place for these younger engineers to go. So, they seek employment elsewhere.

We’ve recently developed a technical performance ladder that is compatible to our management ladder. At the top of the technical ladder we have our consultant grade. Here our engineers can earn just about any salary based, of course, on their performance. The consultant position came about because of a problem in our Eton Division. I would venture to say that in the entire computer world, the most difficult job is designing disk drives. These

Continental Computer Corporation 55

people are specialists in a world of their own. There are probably only twenty-five people in the world who possess this expertise. We have five of them here at Continental. If one of our competitors would come in here and lure away just two of these guys, we would literally have to close down the Eton Division. So we’ve developed a consultant category. Now the word has spread and all of our engineers are applying for transfer to the Eton Division so as to become eligible for this new pay grade. In the Lampco

Division alone I have had over fifty requests for transfer from engineers who now consider themselves as computer engineers. To make matters worse, the job market in computer technology is so good today that these people could easily leave us for more money elsewhere.

We’ve been lucky in the Lampco Division. Most of our contracts are large, and we can afford to maintain a project office staffed with three or four project engineers. These project engineers consider themselves as managers, not engineers. Actually they’re right in doing so because theoretically they are engineering managers, not doers. Many of our people in Lamco are title-oriented and would prefer to be a project engineer as opposed to any other position. Good project engineers have been promoted, or laterally transferred, to project management so that we can pay them more. Actually, they do the same work.

In our Eton Division, we have a somewhat weird project management structure. We’re organized on a product form rather than a project form of management. The engineers are considered to be strictly support for the business development function, and are not permitted to speak to the customers except under special circumstances. Business development manages both the product lines and R&D projects going on at one time. The project leader is selected by the director of engineering and can be a functional manager or just a functional employee. The project leader reports to his normal supervisor. The project leader must also report informally to one of the business development managers who is also tracking this project. This poses a problem in that when a conflict occurs, we sometimes have to take it up two or three levels before it can be resolved. Some conflicts have been so intense that they’ve had to be resolved at the corporate level.

The Eton Division happens to be our biggest money maker. We’re turning out disk drives at an incredible rate and are backlogged with orders for at least six months. Many of our top R&D engineers are working in production support capacities because we cannot get qualified people fast enough. Furthermore, we have a yearly turnover rate in excess of 10 percent among our engineers below thirty years of age. We have several engineers who are earning more than their department managers. We also have five consultant engineers who are earning more than the department managers. We also have four consultant engineers who are earning as much as division managers.

We’ve had the greatest amount of problems in this division. Conflicts continuously arise due to interdependencies and misunderstandings. Our product line managers are the only people permitted to see the customers. This often alienates our engineering and manufacturing people, who are often called upon to respond to customer requests.

Planning is another major problem that we’re trying to improve upon. We have trouble getting our functional mangers to make commitments. Perhaps this is a result of our inability to develop a uniform procedure for starting up a program. We always argue about when to anchor down the work. Our new, younger employees want to anchor everything down at once, whereas the poor project managers say not to anchor down anything. We, therefore, operate at all levels of the spectrum.

We can carry this problem one step further. How do we get an adequate set of objectives defined initially? We failed several times before because we couldn’t get corporate agreement or understanding. We’re trying to establish a policy for development of an architectural design document that will give good front-end definition.

Generally we’re O.K. if we’re simply modifying an existing product line. But with new product lines we have a problem in convincing people, especially our old customers.

The Ridge Division was originally developed to handle all corporate R&D activities. Unfortunately, our growth rate became so large and diversified that this became impractical. We, therefore, had to decentralize the R&D activities. This meant that each division could do their own R&D work. Corporate then had the responsibility for resolving conflicts, establishing priorities, and ensuring that all division are well-informed of the total R&D picture. Corporate must develop good communication channels between the divisions so that duplication of effort does not occur.

Almost all of our technical specialists have advanced degrees in engineering disciplines. This poses a severe problem for us, especially since we have a pure traditional structure. When a new project comes up, the project is assigned to the functional department that has the majority of the responsibility. One of the functional employees is then designated as the project manager. We realize that the new project manager has no authority to control resources that are assigned to other departments. Fortunately, our department managers realize this also, and usually put forth a concerted effort to provide whatever resources are needed. Most of the conflicts that do occur are resolved at the department manager level.

When a project is completed, the project manager returns to his or her former position as an engineering member of a functional organization. We’ve been quite concerned about these people that continuously go back and forth between project management and functional project engineering. This type of relationship is a must in our environment because our project managers must have a command of technology. We continuously hold in-house seminars on project management so as to provide our people with training in management skills, cost control, planning, and scheduling. We feel that we’ve been successful in this regard. We are always afraid that if we continue to grow, we’ll have to change our structure and throw the company into chaos. Last time when we began to grow, corporate reassigned some of our R&D activities to other divisions. I often wonder what would have happened if this had not been done.

Questions 57

For R&D projects that are funded out of house, we generally have no major management problems for our project managers or project engineers. For corporate funded projects, however, life becomes more complex mainly because we have a tough time distinguishing when to kill a project or to pour money into it. Our project managers always argue that with just a little more corporate funding they can solve the world’s greatest problems.

From the point of view of R&D, our biggest problems are in “grass roots projects.” Let me explain what I mean by this. An engineer comes up with an idea and wants some money to pursue it. Unfortunately, our division managers are not budgeted for “seed monies” whenever an employee comes up with an idea for research or new product development. Each person must have a charge number to bill his time against. I know of virtually no project manager who would out-and-out permit someone to do independent research on a budgeted project.

So the engineer comes to us at corporate looking for seed money. Occasionally, we at corporate provide up to $50,000 for short-term seed money. That $50,000 might last for three to four months if the engineer is lucky. Unfortunately, obtaining the money is the lesser of the guy’s problems. If the engineer needs support from another department, he’s not going to get it because his project is just an informal “grass roots” effort, whereas everything else is a clearly definable, well-established project. People are reluctant to attach themselves to a “grass roots” effort because history has shown that the majority of them will be failures.

The researcher now has the difficult job of trying to convince people to give him support while continuously competing with other projects that are clearly defined and have established priorities. If the guy is persistent, however, he has a good chance to succeed. If he succeeds, he gets a good evaluation. But if he fails, he’s at the mercy of his functional manager. If the functional manager felt that this guy could have been of more value to the company on a project basis, the he’s liable to grade him down. But even with these risks, we still have several “seed money” requests each month by employees looking for glory.

Everyone sat around the gable listening to Ed White’ comments. What had started out as a meeting to professionalize project management as a career path position, uniformly applied across all divisions seemed to have turned into a complaint session. The problems identified by Ed White now left people with the notion that there may be more pressing problems.


  1. Is it common for companies to maintain two or more sets of books for cost accounting?
  2. Is the matrix structure well suited for the solution to the above question?
  3. Why do most project management structures find the necessity for a dual ladder system?
  4. Should companies with several different types of projects have a uniform procedure for planning projects?
  5. Is it beneficial to have to take conflicts up two or three levels for resolution?
  6. Should project managers be permitted to talk to the customer even if the project is in support of a product line?
  7. Should corporate R&D be decentralized?
  8. What is meant by seed money?
  9. How does control of seed money differ in a decentralized versus a centralized R&D environment?
  10. Should the failure of a “grass roots” project affect an employee’s opportunityfor promotion?
  11. If you were the vice president of either engineering or R&D, would you prefer centralized or decentralized control?
  12. In either case, how would you handle each of the previously defined problems?

Goshe Corporation

“I’ve called this meeting to try to find out why we’re having a difficult time upgrading our EDP [Electronic Data Processing] Department to an MIS [Managment Information Systems] Division,” remarked Herb Banyon, executive vice president of Goshe Corporation.

Last year we decided to give the EDP Department a chance to show that it could contribute to corporate profits by removing the department from under the control of the Finance Division and establishing an MIS Division. The MIS Division should be a project-driven division using a project management methodology. I expected great results. I continuously get reports stating that we’re having major conflicts and personality clashes among the departments involved in these MIS projects and that we’re between one month to three months behind on almost all projects. If we don't resolve this problem right now, the MIS Division will be demoted to a department and once again find itself under the jurisdiction of the finance director.


In June 1997, Herb Banyon announced that Goshe Corporation would be giving salary increases amounting to an average of 7 percent companywide, with the


percent distribution as shown in Exhibit I. The EDP Department, especially the scientific programmers, were furious because this was the third straight year they had received below-average salary increases. The scientific programmers felt that they were performing engineering-type work and, therefore, should be paid according to the engineering pay scale. In addition, the software that was developed by the scientific programs was shortening schedules and lowering manufacturing costs. The scientific programmers were contributing to corporate profitability.

The year before, the scientific programmers had tried to convince management that engineering needed its own computer and that there should be established a separate engineering computer programming department within the Engineering Division. This suggestion had strong support form the engineering community because they would benefit by having complete control of their own computer. Unfortunately, management rejected the idea, fearing that competition and conflict would develop by having two data processing units, and that one centralized unit was the only viable solution.

As a result of management’s decision to keep the EDP Department intact and not give them a chance to demonstrate that they can and do contribute to profits, the EDP personnel created a closed shop environment and developed a very hostile attitude toward all other departments, even those within their own Finance Division.


In January 1998, Banyon announced the organizational restructuring that would upgrade the EDP Department. Al Grandy, the EDP Department manager, was given a promotion to division manager, provided that he could adequately manage the MIS project activities. By December 1988, it became apparent that something must be done to remedy the deteriorating relationship between the functional departments and the MIS personnel. Banyon called a meeting of all functional and divisional managers in hopes that some of the problems could be identified and worked out.

Herb Banyon: “For the past ten months I’ve watched you people continuously arguing back and forth about the MIS problems, with both sides always giving me the BS about how we’ll work it out. Now, before it's too late, let’s try to get at the root cause of the problem. Anyone want to start the ball rolling?”

Cost accounting manager: “The major problem, as I see it, is the lack of interpersonal skills employed by the MIS people. Our MIS personnel have received only on-the-job training. The Human Resources Department has never provided us with any project management training, especially in the behavioral areas of project management. Our organization here is, or should I say has been up to now, The Meeting of the Minds 61

purely traditional, with each person reporting to and working for and with one manager. Now we have horizontal projects in which the MIS project leaders must work with several functional managers, all of whom have different management styles, different personalities, and different dispositions. The MIS group just can’t turn around in one or two weeks and develop these necessary skills. It takes time and training.”

Training manager: “I agree with your comments. There are two types of situations that literally demand immediate personnel development training. The first situation is when personnel are required to perform in an organizational structure that has gone from the relatively simple, pure structure to a complex, partial matrix structure. This is what has happened to us. The second situation is when the task changes from simple to complex.

“With either situation by itself, there is usually some slack time. But when both occur almost instantaneously, as is our case, immediate training should be undertaken. I told this to Grandy several times, but it was like talking to deaf ears. All he kept saying was that we don't have time now because we’re loaded down with priority projects.”

Al Grandy: “I can see from the start that we’re headed for a rake-Grandy-overthe-coals meeting. So let me defend each accusation as it comes up. The day Banyon announced the organizational change, I was handed a list of fifteen MIS projects that had to be completed within unrealistic time schedules. I performed a manpower requirements projection and found that we were understaffed by 35 percent. Now I’m not stupid. I understand the importance of training my people. But how am I supposed to release my people for these training sessions when I have been given specific instructions that each of these fifteen projects had a high priority? I can just see myself walking into your office, Herb, telling you that I want to utilize my people only half-time so that they can undergo professional development training.”

Banyon: “Somehow I feel that the buck just got passed back to me. Those schedules that I gave you appeared totally realistic to me. I just can’t imagine any simple computer program requiring more time than my original estimates. And had you come to me with a request for training, I would have checked with personnel and then probably would give you the time to train your people.”

Engineering manager: “I wish to make a comment or two about schedules. I’m not happy when an MIS guy walks into my office and tells me, or should I say demands, that certain resources be given to him so that he can meet a schedule or milestone date that I’ve had no input into establishing. My people are just not going to become pawns in the power struggle for MIS supremacy. My people become very defensive if they’re not permitted to participate in the planning activities, and I have to agree with them.”

Manufacturing manager: “The Manufacturing Division has a project with the MIS group for purchasing a hardware system that will satisfy our scheduling and material handling system requirements. My people wanted to be involved in the hardware selection process. Instead, the MIS group came to us with proposal in hand identifying a system that was not a practical extension of the state of the art and that did not fall within our cost and time constraints.

“We in manufacturing, being nice guys, modified our schedules to be compatible with the MIS project leaders’ proposal. We then tried to provide more detailed information for the MIS team so that . . .”

Grandy: “Just a minute here! Your use of the word we is somewhat misleading. Project management is designed and structured so that sufficient definition of work to be performed can be obtained in order that a more uniform implementation can result. My people requested a lot of detailed information from your staff and were told to do the work ourselves and find our own information. After all, as one of the functional employees put it, if we’re going to pass all of the responsibility over to you guys in project management; you people can just do it all.

“Therefore, because my people had insufficient data, between us we ended up creating a problem, which was further intensified by a lack of formal communication between the MIS group and the functional departments, as well as between the functional departments themselves. I hold functional management responsible for this problem because some of the managers did not seem to have understood that they are responsible for the project work under their cognizance. Furthermore, I consider you, the manufacturing manager, as being remiss in your duties by not reviewing the performance of our personnel assigned to the project.”

Manufacturing manager: “Your people designed a system that was way too complex for our needs. Your people consider this project as a chance for glory. It is going to take us ten years to grow into this complex system you’ve created.”

Grandy: “Let me make a few comments about our delays in the schedule. One of our projects was a six-month effort. After the third month, there was a new department manager assigned in the department that was to be the prime user of this project. We were then given a change in user requirements and incurred additional delays in waiting for new user authorization.

“Of course, people problems always affect schedules. One of my most experienced people became sick and had to be replaced by a rookie. In addition, I’ve tried to be a ‘good guy’ by letting my people help out some of the functional managers when non-MIS problems occur. This other work ended up encroaching on staff time to a degree where it impacted the schedules.

“Even though the MIS group regulates computer activities, we have no control over computer downtime or slow turnabout time. Turnabout time is directly proportional to our priority lists, and we all know that these lists are established from above.

Exhibit I. Goshe organizational chart. Note: Percentages indicate 1997 salary increases

Goshe organizational salary increases chart

“And last, we have to consider both company and project politics. All the MIS group wanted to do was to show that we can contribute to company profits. Top management consistently tries to give us unwanted direction and functional management tries to sabotage our projects for fear that if we’re successful, then it will be less money for their departments during promotion time.”

Banyon: “Well, I guess we’ve identified the major problem areas. The question remaining is: What are we going to do about it?”


  1. What are the major problems in the case study?
  2. What are the user group’s perceptions of the problem?
  3. Was the company committed to project management?
  4. Was project management forced upon the organization?
  5. Did Goshe jump blindly into project management, or was there a gradual introduction?
  6. Did the company consider the problems that could manifest themselves with the implementation of change (i.e., morale)?
  7. Did the company have a good definition of project management?
  8. Should there have been a new set of company policies and procedures when the MIS group was developed?
  9. How were project deadlines established?
  10. Who established responsibilities for resource management?
  11. Was there an integrated planning and control system?
  12. Was there any training for division or project managers
  13. Should Grandy have been promoted to his current position, or should someone have been brought in from outside?
  14. Can Grandy function effectively as both a project manager and a division manager?
  15. Do you feel that Banyon understands computer programming?
  16. Did anyone consider employee performance evaluations?
  17. Did the company have good vertical communications?
  18. Can a company without good vertical communications still have (or develop) good horizontal communications?
  19. With the development of the MIS group, should each division be given 7 percent in the future?
  20. What are the alternatives that are available?
  21. What additional recommendations would you make?

Acorn Industries

Acorn Industries, prior to July of 1996, was a relatively small midwestern corporation dealing with a single product line. The company dealt solely with commercial contracts and rarely, if ever, considered submitting proposals for government contracts. The corporation at that time functioned under a traditional form of organizational structure, although it did possess a somewhat decentralized managerial philosophy within each division. In 1993, upper management decided that the direction of the company must change. To compete with other manufacturers, the company initiated a strong acquisition program whereby smaller firms were bought out and brought into the organization. The company believed that an intensive acquisition program would solidify future growth and development. Furthermore, due to their reputation for possessing a superior technical product and strong marketing department, the acquisition of other companies would allow them to diversify into other fields, especially within the area of government contracts. However, the company did acknowledge one shortcoming that possibly could hurt their efforts—it had never fully adopted, nor implemented, any form of project management.

In July of 1996, the company was awarded a major defense contract after four years of research and development and intensive competition from a major defense organization. The company once again relied on their superior technological capabilities, combined with strong marketing efforts, to obtain the contract. According to Chris Banks, the current marketing manager at Acorn

Industries, the successful proposal for the government contract was submitted


solely through the efforts of the marketing division. Acorn’s successful marketing strategy relied on three factors when submitting a proposal:

  1. Know exactly what the customer wants.
  2. Know exactly what the market will bear.
  3. Know exactly what the competition is doing and where they are going.

The contract awarded in July 1996 led to subsequent successful government contracts and, in fact, eight more were awarded amounting to $80 million each. These contracts were to last anywhere from seven to ten years, taking the company into early 2009 before expiration would occur. Due to their extensive growth, especially with the area of government contracts as they pertained to weapon systems, the company was forced in 1997 to change general managers. The company brought in an individual who had an extensive background in program management and who previously had been heavily involved in research and development.


The problems facing the new general manager were numerous. Prior to his arrival, the company was virtually a decentralized manufacturing organization. Each division within the company was somewhat autonomous, and the functional managers operated under a Key Management Incentive Program (KMIP). The prior general manager had left it up to each division manager to do what was required. Performance had been measured against attainment of goals. If the annual objective was met under the KMIP program, each division manager could expect to receive a year-end bonus. These bonuses were computed on a percentage of the manager’s base pay, and were directly correlated to the ability to exceed the annual objective. Accordingly, future planning within each division was somewhat stagnant, and most managers did not concern themselves with any aspect of organizational growth other than what was required by the annual objective.

Because the company had previously dealt with a single product line and interacted solely with commercial contractors, little, if any, production planning had occurred. Interactions between research and development and the production engineering departments were virtually nonexistent. Research and Development was either way behind or way ahead of the other departments at any particular time. Due to the effects of the KMIP program, this aspect was likely to continue.


To compound the aforementioned problems, the general manager faced the unique task of changing corporate philosophy. Previously, corporate management was concerned with a single product with a short term production cycle. Now, however, the corporation was faced with long-term government contracts, long Expansion and Growth

cycles, and diversified products. Add to this the fact that the company was almost void of any individuals who had operated under any aspect of program management, and the tasks appeared insurmountable.

The prime motivating factor for the new general manager during the period from 1997 to 1999 was to retain profitability and maximize return on investment. In order to do this, the general manager decided to maintain the company’s commercial product line, operating it at full capacity. This decision was made because the company was based in solid financial management and the commercial product line had been extremely profitable. According to the general manager, Ken Hawks,

The concept of keeping both commercial and government contracts separate was a necessity. The commercial product line was highly competitive and maintained a good market share. If the adventure into weaponry failed, the company could always fall back on the commercial products. At any rate, the company at this time could not solely rely on the success of government contracts, which were due to expire.

In 1996, Acorn reorganized its organizational structure and created a project management office under the direct auspices of the general manager (see Exhibit I).


In late 1996, Acorn initiated a major expansion and reorganization within its various divisions. In fact, during the period between 1996 and 1997, the government contracts resulted in the acquiring of three new companies and possibly the acquisition of a fourth. As before, the expertise of the marketing department was heavily relied upon. Growth objectives for each division were set by corporate headquarters with the advice and feedback of the division managers. Up to 1996, Acorn’s divisions had not had a program director. The program management functions for all divisions were performed by one program manager whose expertise was entirely within the commercial field. This particular program manager was concerned only with profitability and did not closely interact with the various customers. According to Chris Banks,

The program manager’s philosophy was to meet the minimum level of performance required by the contract. To attain this, he required only adequate performance. As Acorn began to become more involved with government contracts, the position remained that given a choice between high technology and low reliability, the company would always select an acquisition with low technology and high reliability. If we remain somewhere in between, future government contracts should be assured.

At the same time, Acorn established a Chicago office headed by a group executive. The office was mainly for monitoring for government contracts. Concurrently, an office was established in Washington to monitor the trends within the Department of Defense and to further act as a lobbyist for government contracts. A position of director of marketing was established to interact with the program office on contract proposals. Prior to the establishment of a director of program management position in 1997, the marketing division had been responsible for contract proposals. Acorn believed that marketing would always, as in the past, set the tone for the company. However, in 1997, and then again in 1998 (see Exhibits II and III), Acorn underwent further organizational changes. A full-time director of project management was appointed, and a program management office was set up, with further subdivisions of project managers responsible for the various government contracts. It was at this time that Acorn realized the necessity of involving the program manager more extensively in contract proposals. One faction within corporate management wanted to keep marketing responsible for contract proposals. Another decided that a combination between the marketing input and the expertise of the program director must be utilized.

According to Chris Banks,

We began to realize that marketing no longer could exclude other factors within the organization when preparing contract proposals. As project management became a reality, we realized that the project manager must be included in all phases of contract proposals.

Prior to 1996, the marketing department controlled most aspects of contract proposals. With the establishment of the program office, interface between the marketing department and the program office began to increase.


In 1997, Acorn, for the first time, identified a director of project management. This individual reported directly to the general manager and had under his control:

  1. The project managers
  2. The operations group
  3. The contracts group

Under this reorganization, the director of project management, along with the project managers, possessed greater responsibility relative to contract proposals.

These new responsibilities included:

Interaction with Functional Departments

  1. Research and development
  2. Preparation of contract proposals
  3. Interaction with marketing on submittal of proposals
  4. Responsibility for all government contracts
    1. Trade-off analysis
    2. Cost analysis
  5. Interface with engineering department to insure satisfaction of customer’s desires

Due to the expansion of government contracts, Acorn was now faced with the problem of bringing in new talent to direct ongoing projects. The previous project manager had had virtual autonomy over operations and maintained a singular philosophy. Under his tenure, many bright individuals left Acorn because future growth and career patterns were questionable. Now that the company is diversifying into other product lines, the need for young talent is crucial. Project management is still in the infancy stage.

Acorn’s approach to selecting a project manager was dependent upon the size of the contract. If the particular contract was between $2 and $3 billion, the company would go with the most experienced individual. Smaller contracts would be assigned to whoever was available.


Due to the relative newness of project management, little data was available to the company to fully assess whether operations were successful. The project managers were required to negotiate with the functional departments for talent. This aspect has presented some problems due to the long-term cycle of most government contracts. Young talent within the organization saw involvement with projects as an opportunity to move up within the organization. Functional managers, on the other hand, apparently did not want to let go of young talent and were extremely reluctant to lose any form of autonomy.

Performance of individuals assigned to projects was mutually discussed between the project manager and the functional manager. Problems arose, however, due to length of projects. In some instances, if an individual had been assigned longer to the project manager than to the functional manager, the final evaluation of performance rested with the project manager. Further problems thus occurred when performance evaluations were submitted. In some instances, adequate performance was rated high in order to maintain an individual within the project scheme. According to some project managers, this aspect was a reality that must be faced, due to the shortage of abundant talent.


In early 1998, Acorn began to realize that a production shortage relative to government contracts would possibly occur in late 2001 or early 2003. Acorn initiated a three-pronged attack to fill an apparent void:

  1. Do what you do best.
  2. Look for similar product lines.
  3. Look for products that do not require extensive R&D.

To facilitate these objectives, each division within the corporation established its own separate marketing department. The prime objective was to seek more federal funds through successful contract proposals and utilize these funds to increase investment into R&D. The company had finally realized that the success of the corporation was primarily attributed to the selection of the proper general manager. However, this had been accomplished at the exclusion of proper control over R&D efforts. A more lasting problem still existed, however. Program management was still less developed than in most other corporations.

Exhibit I. 1996 organizational structure

Acorn industries organizational structure 1996

Exhibit II. 1997 organizational structure

Acorn industries organizational structure 1997

Exhibit III. 1998 organizational structure (10/1/98)

Acorn industries organizational structure 1998


  1. What are the strengths of Acorn?
  2. What are the weaknesses of Acorn?
  3. What are your recommendations?
  4. Additional questions:
    1. Why was project management so slow in getting off the ground?
    2. Can marketing continue to prepare proposals without functional input?
    3. What should be the working relationship between the product manager andthe proposal?
    4. Does KMIP benefit project management?
    5. Should KMIP be eliminated?

MIS Project Management at First National Bank

During the last five years, First National Bank (FNB) has been one of the fastest growing banks in the Midwest. The holding company of the bank has been actively involved in purchasing small banks though out the state of Ohio. This expansion and the resulting increase of operations had been attended by considerable growth in numbers of employees and in the complexity of the organizational structure. In five years the staff of the bank has increased by 35 percent, and total assets have grown by 70 percent. FNB management is eagerly looking forward to a change in the Ohio banking laws that will allow statewide branch banking.


Data processing at FNB has grown at a much faster pace than the rest of the bank. The systems and programming staff grew from twelve in 1980 to more than seventy-five during the first part of 1987. Because of several future projects, the staff was expected to increase by 50 percent during the next two years.

Prior to 1982, the Information Services Department reported to the executive vice president of the Consumer Banking and Operations Division. As a result, the first banking applications to be computerized were in the demand deposit, savings, and consumer credit banking areas. The computer was seen as a tool to

Exhibit I. Information Services Division organizational chart

Information Services Division organizational chart

speed up the processing of consumer transactions. Little effort was expended to meet the informational requirements of the rest of the bank. This caused a highlevel conflict, since each major operating organization of the bank did not have equal access to systems and programming resources. The management of FNB became increasingly aware of the benefits that could accrue from a realignment of the bank’s organization into one that would be better attuned to the total information requirements of the corporation.

In 1992 the Information Services Division (ISD) was created. ISD was removed from the Consumer Banking and Operations Division to become a separate division reporting directly to the president. An organizational chart depicting the Information Services Division is shown in Exhibit I.


During 1992 the Priorities Committee was formed. It consists of the chief executive officer of each of the major operating organizations whose activities are directly affected by the need for new or revised information systems.

Exhibit II. First National Bank organizational chart

First National Bank organizational chart

The Priorities Committee was established to ensure that the resources of systems and programming personnel and computer hardware would be used only on those information systems that can best be cost justified. Divisions represented on the committee are included in Exhibit II.

The Priorities Committee meets monthly to reaffirm previously set priorities and rank new projects introduced since the last meeting. Bank policy states that the only way to obtain funds for an information development project is to submit a request to the Priorities Committee and have it approved and ranked in overall priority order for the bank. Placing potential projects in ranked sequence is done by the senior executives. The primary document used for Priorities Committee review is called the project proposal.


When a user department determines a need for the development or enhancement of an information system, it is required to prepare a draft containing a statement of the problem from its functional perspective. The problem statement is sent[jy[bnto the president of ISD, who authorizes Systems Research (see Exhibit I) to prepare an impact statement. This impact statement will include a general overview from ISD’s perspective of:

The Project Proposal Life Cycle

  • Project feasibility
  • Project complexity
  • Conformity with long-range ISD plans
  • Estimated ISD resource commitment
  • Review of similar requests
  • Unique characteristics/problems
  • Broad estimate of total costs

The problem and impact statements are then presented to the members of the Priorities Committee for their review. The proposals are preliminary in nature, but they permit the broad concept (with a very approximate cost attached to it) to be reviewed by the executive group to see if there is serious interest in pursuing the idea. If the interest level of the committee is low, then the idea is rejected. However, if the Priorities Committee members feel the concept has merit, they authorize the Systems Research Group of ISD to prepare a full-scale project proposal that contains:

  • A detailed statement of the problem Identification of alternative solutions
    • Impact of request on:
    • User division
    • ISD
    • Other operating divisions
  • Estimated costs of solutions
  • Schedule of approximate task duration
  • Cost-benefit analysis of solutions
  • Long-range implications
  • Recommended course of action

After the project proposal is prepared by systems research, the user sponsor must review the proposal and appear at the next Priorities Committee meeting to speak in favor of the approval and priority level of the proposed work. The project proposal is evaluated by the committee and either dropped, tabled for further review, or assigned a priority relative to ongoing projects and available resources.

The final output of a Priorities Committee meeting is an updated list of project proposals in priority order with an accompanying milestone schedule that indicates the approximate time span required to implement each of the proposed projects.

The net result of this process is that the priority-setting for systems development is done by a cross section of executive management; it does not revert by default to data processing management. Priority-setting, if done by data processing, can lead to misunderstanding and dissatisfaction by sponsors of the projects that did not get ranked high enough to be funded in the near future. The project proposal cycle at FNB is diagrammed in Exhibit III. Once a project has risen to the

Exhibit III. The project proposal cycle

project proposal life cycle

top of the ranked priority list, it is assigned to the appropriate systems group for systems definition, system design and development, and system implementation.

The time spent by systems research in producing impact statements and project proposals is considered to be overhead by ISD. No systems research time is directly charged to the development of information systems.


As noted before, the systems and programming staff of ISD has increased in size rapidly and was expected to expand by another 50 percent over the next two years. As a rule, most new employees have previous data processing experience and training in various systems methodologies. ISD management recently implemented a project management system dedicated to providing a uniform step-by step methodology for the development of management information systems. All project work is covered by tasks that make up the information project development life cycle at FNB. The subphases used by ISD in the project life cycle are:

  1. Systems definition
    1. Project plan
    2. User requirements
    3. Systems definition
    4. Advisability study
  2. Systems design and development
    1. Preliminary systems design
    2. Subsystems design
    3. Program design
    4. Programming and testing
  3. System implementation
    1. System implementation
    2. System test
    3. Production control turnover
    4. User training
    5. System acceptance


The project management system contains a list of all normal tasks and subtasks (over 400) to be performed during the life cycle of a development project. The project manager must examine all the tasks to determine if they apply to a given project. The manager must insert additional tasks if required and delete tasks that do not apply. The project manager next estimates the amount of time (in hours) to complete each task of each subphase of the project life cycle.

The estimating process of the project management system uses a “moving window” concept. ISD management feels that detailed cost estimating and time schedules are only meaningful for the next subphase of a project, where the visibility of the tasks to be performed is quite clear. Beyond that subphase, a more summary method of estimating is relied on. As the project progresses, new segments of the project gain visibility. Detailed estimates are made for the next major portion of the project, and summary estimates are done beyond that until the end of the project.

Estimates are performed at five intervals during the project life cycle. When the project is first initiated, the funding is based on the original estimates, which are derived from the list of normal tasks and subtasks. At this time, the subphases through the advisability study are estimated in detail, and summary estimates are prepared for the rest of the tasks in the project. Once the project has progressed through the advisability study, the preliminary systems design is estimated in detail, and the balance of the project is estimated in a more summary fashion. Estimates are conducted in this manner until the systems implementation plan is completed and the scope of the remaining subphases of the project is known. This multiple estimating process is used because it is almost impossible at the beginning of many projects to be certain of what the magnitude of effort will be later on in the project life cycle.


The project plan is the official document for securing funding from the sponsor in the user organization. The project plan must be completed and approved by the project manager before activity can begin on the user requirements subphase (1b). An initial stage in developing a project plan includes the drawing of a network that identifies each of the tasks to be done in the appropriate sequence for their execution. The project plan must include a milestone schedule, a cost estimate, and a budget request. It is submitted to the appropriate general manager of systems and programming for review so that an understanding can be reached of how the estimates were prepared and why the costs and schedules are as shown. At this time the general manager can get an idea of the quantity of systems and programming resources required by the project. The general manager next sets up a meeting with the project manager and the user sponsor to review the project plan and obtain funding from the user organization.

The initial project funding is based on an estimate that includes a number of assumptions concerning the scope of the project. Once certain key milestones in System Quality Reviews

the project have been achieved, the visibility on the balance of the project becomes much clearer, and reestimates are performed. The reestimates may result in refunding if there has been a significant change in the project. The normal milestone refunding points are as follows:

  1. After the advisability study (1d)
  2. After the preliminary systems design (2a)
  3. After the program design (2c)
  4. After system implementation (3a)

The refunding process is similar to the initial funding with the exception that progress information is presented on the status of the work and reasons are given to explain deviations from project expenditure projections. A revised project plan is prepared for each milestone refunding meeting.

During the systems design and development stage, design freezes are issued by the project manager to users announcing that no additional changes will be accepted to the project beyond that point. The presence of these design freezes is outlined at the beginning of the project. Following the design freeze, no additional changes will be accepted unless the project is reestimated at a new level and approved by the user sponsor.


The key element in ensuring user involvement in the new system is the conducting of quality reviews. In the normal system cycles at FNB, there are ten quality reviews, seven of which are participated in jointly by users and data processing personnel, and three of which are technical reviews by data processing (DP) personnel only. An important side benefit of this review process is that users of a new system are forced to become involved in and are permitted to make a contribution to the systems design.

Each of the quality review points coincides with the end of a subphase in the project life cycle. The review must be held at the completion of one subphase to obtain authorization to begin work on the tasks of the next subphase of the project.

All tasks and subtasks assigned to members of the project team should end in some “deliverable” for the project documentation. The first step in conducting a quality review is to assemble the documentation produced during the subphase for distribution to the Quality Review Board. The Quality Review Board consists of between two and eight people who are appointed by the project manager with the approval of the project sponsor and the general manager of systems and programming. The minutes of the quality review meeting are written either to express “concurrence” with the subsystem quality or to recommend changes to the system that must be completed before the next subphase can be started. By this process the system is fine-tuned to the requirements of the members of the review group at the end of each subphase in the system. The members of the Quality Review Board charge their time to the project budget.

Quality review points and review board makeup are as follows:


Review Board

User requirements

User oriented

Systems definition

User oriented

Advisability study

User oriented

Preliminary systems design

User oriented

Subsystems design

Users and DP

Program design


Programming and testing


System implementation

User oriented

System test

User oriented

Production control turnover


To summarize, the quality review evaluates the quality of project subphase results, including design adequacy and proof of accomplishment in meeting project objectives. The review board authorizes work to progress based on their detailed knowledge that all required tasks and subtasks of each subphase have been successfully completed and documented.


Once a project has risen to the top of the priority list, the appropriate manager of systems development appoints a project manager from his or her staff of analysts. The project manager has a short time to review the project proposal created by systems research before developing a project plan. The project plan must be approved by the general manager of systems and programming and the user sponsor before the project can be funded and work started on the user requirements subphase.

The project manager is “free” to spend as much time as required in reviewing the project proposal and creating the project plan; however, this time is “charged” to the project at a rate of $76 per hour. The project manager must negotiate with a “supervisor,” the manager of systems development, to obtain the required systems analysts for the project, starting with the user requirements subphase. The project manager must obtain programming resources from the manager of systems support. Schedule delays caused by a lack of systems or Corporate Database

programming resources are to be communicated to the general manager by the project manager. All ISD personnel working on a project charge their time at a rate of $76 per hour. All computer time is billed at a rate of $164 per hour.

There are no user personnel on the project team; all team members are from ISD.


John Hart had for several years seen the need to use the computer to support the corporate marketing effort of the bank. Despite the fact that the majority of the bank’s profits were from corporate customers, most information systems effort was directed at speeding up transactions handling for small unprofitable accounts.

Mr. Hart had extensive experience in the Corporate Banking Division of the bank. He realized the need to consolidate information about corporate customers from many areas of the bank into one corporate database. From this information corporate banking services could be developed not only to better serve the corporate customers, but also to contribute heavily to the profit structure of the bank through repricing of services.

The absence of a corporate database meant that no one individual knew what total banking services a corporate customer was using, because corporate services were provided by many banking departments. It was also impossible to determine how profitable a corporate customer was to the bank. Contact officers did not have regularly scheduled calls. They serviced corporate customers almost on a hit-or-miss basis. Unfortunately, many customers were “sold” on a service because they walked in the door and requested it. Mr. Hart felt that there was a vast market of untapped corporate customers in Ohio who would purchase services from the bank if they were contacted and “sold” in a professional manner. A corporate database could be used to develop corporate profiles to help contact officers sell likely services to corporations.

Mr. Hart knew that data about corporate customers was being processed in many departments of the bank, but mainly in the following divisions:

  • Corporate banking
  • Corporate trust
  • Consumer banking

He also realized that much of the information was processed in manual systems, some was processed by time-sharing at various vendors, and other information was computerized in many internal information systems.

The upper management of FNB must have agreed with Mr. Hart because in December of 1996 the Corporate Marketing Division was formed with John Hart as its executive vice president. Mr. Hart was due to retire within the year but was honored to be selected for the new position. He agreed to stay with the bank until “his” new system was “off the ground.” He immediately composed a problem statement and sent it to the ISD. Systems Research compiled a preliminary impact statement. At the next Priorities Committee meeting, a project proposal was authorized to be done by Systems Research.

The project proposal was completed by Systems Research in record time. Most information was obtained from Mr. Hart. He had been thinking about the systems requirements for years and possessed vast experience in almost all areas of the bank. Other user divisions and departments were often “too busy” when approached for information. A common reply to a request for information was,

“That project is John’s baby; he knows what we need.”

The project proposal as prepared by Systems Research recommended the following:

  • Interfaces should be designed to extract information from existing computerized systems for the corporate database (CDB).
  • Time-sharing systems should be brought in-house to be interfaced with the CDB.
  • Information should be collected from manual systems to be integrated into the CDB on a temporary basis.
  • Manual systems should be consolidated and computerized, potentially causing a reorganization of some departments.
  • Information analysis and flow for all departments and divisions having contact with corporate customers should be coordinated by the Corporate Marketing Division.
  • All corporate database analysis should be done by the Corporate Marketing Division staff, using either a user-controlled report writer or interactive inquiry.

The project proposal was presented at the next Priorities Committee meeting where it was approved and rated as the highest priority MIS development project in the bank. Mr. Hart became the user sponsor for the CDB project.

The project proposal was sent to the manager of corporate development, who appointed Jim Gunn as project manager from the staff of analysts in corporate development. Jim Gunn was the most experienced project manager available. His prior experience consisted of successful projects in the Financial Division of the bank.

Jim reviewed the project proposal and started to work on his project plan. He was aware that the corporate analyst group was presently understaffed but was assured by his manager, the manager of corporate development, that resources would be available for the user requirements subphase. He had many questions concerning the scope of the project and the interrelationship between the Corporate Database

Corporate Marketing Division and the other users of corporate marketing data. But each meeting with Mr. Hart ended with the same comment: “This is a waste of time. I’ve already been over this with Systems Research. Let’s get moving.” Jim also was receiving pressure from the general manager to “hurry up” with the project plan. Jim therefore quickly prepared his project plan, which included a general milestone schedule for subphase completion, a general cost estimate, and a request for funding. The project plan was reviewed by the general manager and signed by Mr. Hart.

Jim Gunn anticipated the need to have four analysts assigned to the project and went to his manager to see who was available. He was told that two junior analysts were available now and another analyst should be free next week. No senior analysts were available. Jim notified the general manager that the CDB schedule would probably be delayed because of a lack of resources, but received no response.

Jim assigned tasks to the members of the team and explained the assignments and the schedule. Since the project was understaffed, Jim assigned a heavy load of tasks to himself.

During the next two weeks the majority of the meetings set up to document user requirements were canceled by the user departments. Jim notified Mr. Hart of the problem and was assured that steps would be taken to correct the problem. Future meetings with the users in the Consumer Banking and Corporate Banking Divisions became very hostile. Jim soon discovered that many individuals in these divisions did not see the need for the corporate database. They resented spending their time in meetings documenting the CDB requirements. They were afraid that the CDB project would lead to a shift of many of their responsibilities and functions to the Corporate Marketing Division.

Mr. Hart was also unhappy. The CDB team was spending more time than was budgeted in documenting user requirements. If this trend continued, a revised budget would have to be submitted to the Priorities Committee for approval. He was also growing tired of ordering individuals in the user departments to keep appointments with the CDB team. Mr. Hart could not understand the resistance to his project.

Jim Gunn kept trying to obtain analysts for his project but was told by his manager that none were available. Jim explained that the quality of work done by the junior analysts was not “up to par” because of lack of experience. Jim complained that he could not adequately supervise the work quality because he was forced to complete many of the analysis tasks himself. He also noted that the quality review of the user requirements subphase was scheduled for next month, making it extremely critical that experienced analysts be assigned to the project. No new personnel were assigned to the project. Jim thought about contacting the general manager again to explain his need for more experienced analysts, but did not. He was due for a semiyearly evaluation from his manager in two weeks.

Even though he knew the quality of the work was below standards, Jim was determined to get the project done on schedule with the resources available to him. He drove both himself and the team very hard during the next few weeks. The quality review of the user requirement subphase was held on schedule. Over 90 percent of the assigned tasks had to be redone before the Quality Review Board would sign-off on the review. Jim Gunn was removed as project manager.

Three senior analysts and a new project manager were assigned to the CDB project. The project received additional funding from the Priorities Committee. The user requirements subphase was completely redone despite vigorous protests from the Consumer Banking and Corporate Banking divisions.

Within the next three months the following events happened:

  • The new project manager resigned to accept a position with another firm.
  • John Hart took early retirement.
  • The CDB project was tabled.


All projects at First National Bank (FNB) have project managers assigned and are handled through the Information Services Division (ISD). The organizational structure is not a matrix, although some people think that it is. The case describes one particular project, the development of a corporate database, and the resulting failure. The problem at hand is to investigate why the project failed.


  1. What are the strengths of FNB?
  2. What are the major weaknesses?
  3. What is the major problem mentioned above? Defend your answer.
  4. How many people did the project manager have to report to?
  5. Did the PM remain within vertical structure of the organization?
  6. Is there anything wrong if a PM is a previous co-worker of some team members before the team is formed?
  7. Who made up the project team?
  8. Was there any resistance to the project by company management?
  9. Was there an unnecessary duplication of work?
  10. Was there an increased resistance to change?
  11. Was the communication process slow or fast?


  1. Was there an increased amount of paperwork?
  2. What are reasonable recommendations?
  3. Does the company have any type of project management methodology?
  4. Could the existence of a methodology have alleviated any of the above problems?
  5. Did the bank perform strategic planning for project management or did itsimply rush into the project?
  6. Why do organizations rush into project management without first performingstrategic planning for project management or, at least, some form of benchmarking against other organizations?

Cordova Research Group

Cordova Research Group spent more than thirty years conducting pure and applied research for a variety of external customers. With the reduction, however, in R&D funding, Cordova decided that the survival of the firm would be based upon becoming a manufacturing firm as well as performing R&D. The R&D culture was close to informal project management with the majority of the personnel holding advanced degrees in technical disciplines. To enter the manufacturing arena would require hiring hundreds of new employees, mostly nondegreed.


  1. What strategic problems must be solved?
  2. What project management problems must be solved?
  3. What time frame is reasonable?
  4. If excellence can be achieved, would it occur most likely using formal or informal project management?

Cortez Plastics

Cortez Plastics was having growing pains. As the business base of the company began to increase, more and more paperwork began to flow through the organization. The “informal” project management culture that had worked so well in the past was beginning to deteriorate and was being replaced by a more formal project management approach. Recognizing the cost implications of a more formal project management approach, senior management at Cortez Plastics decided to take some action.


  1. How can a company maintain informal project management during periods of corporate growth?
  2. If the organization persists in creeping toward formal project management,what can be done to return to a more informal approach?
  3. How would you handle a situation where only a few managers or employees are promoting the more formal approach?


  1. P. Manning


In March 2001, the Marketing Division of the L. P. Manning Corporation performed a national survey to test the public’s reaction to a new type of toaster. Manning had achieved success in the past and established itself as a leader in the home appliance industry.

Although the new toaster was just an idea, the public responded favorably. In April of the same year, the vice presidents for planning, marketing, engineering, and manufacturing all met to formulate plans for the development and ultimately the production of the new toaster. Marketing asserted that the manufacturing cost must remain below $70 per unit or else Manning Corporation would not be competitive. Based on the specifications drawn up in the meeting, manufacturing assured marketing that this cost could be met.

The engineering division was given six months to develop the product. Manning’s executives were eager to introduce the product for the Christmas rush. This might give them an early foothold on a strong market share.

During the R&D phase, marketing continually “pestered” engineering with new designs and changes in specifications that would make the new product easier to market. The ultimate result was a one-month slip in the schedule.

Pushing the schedule to the right greatly displeased manufacturing personnel. According to the vice president for manufacturing, speaking to the marketing manager: “I’ve just received the final specifications and designs from engineering. This is not what we had agreed on last March. These changes will

  1. P. Manning Corporation

cause us to lose at least one additional month to change our manufacturing planning. And because we’re already one month behind, I don't see any way that we could reschedule our Christmas production facilities to accommodate this new product. Our established lines must come first. Furthermore, our estimating department says that these changes will increase the cost of the product by at least 25 to 35 percent. And, of course, we must include the quality control section, which has some questions as to whether we can actually live with these specifications. Why don't we just cancel this project or at least postpone it until next year?”

Project Firecracker

“Don, project management is the only way to handle this type of project. With $40 million at stake we can’t afford not to use this approach.”

“Listen, Jeff, your problem is you take seminars given by these ivory tower professors and you think you’re an expert. I’ve been in this business for forty years and I know how to handle this job—and it isn’t through project management.”


Jeff Pankoff, a registered professional engineer, came to work for National Corporation after receiving a mechanical engineering degree. After he arrived at National, he was assigned to the engineering department. Soon thereafter, Jeff realized that he needed to know more about statistics, and he enrolled in the graduate school of a local university. When he was near completion of his master of science degree, National transferred Jeff to one of its subsidiaries in Ireland to set up an engineering department. After a successful three years, Jeff returned to National’s home office and was promoted to chief engineer. Jeff’s department increased to eighty engineers and technicians. Spending a considerable time in administration, Jeff decided an MBA would be useful, so he enrolled in a program at a nearby university. At the time when this project began, Jeff was near the end of the MBA program.

History and Background

National Corporation, a large international corporation with annual sales of about $600 million, employs 8,000 people worldwide and is a specialty machine, component, and tool producer catering to automotive and aircraft manufacturers. The company is over a hundred years old and has a successful and profitable record.

National is organized in divisions according to machine, component, and tool production facilities. Each division is operated as a profit center (see Exhibit I). Jeff was assigned to the Tool Division.

National’s Tool Division produces a broad line of regular tools as well as specials. Specials amounted to only about 10 percent of the regular business, but over the last five years had increased from 5 percent to the current 10 percent. Only specials that were similar to the regular tools were accepted as orders.

National sells all its products through about 3,000 industrial distributors located throughout the United States. In addition, National employs 200 sales representatives who work with the various distributors to provide product seminars.

The traditional approach to project assignments is used. The engineering department, headed by Jeff, is basically responsible for the purchase of capital equipment and the selection of production methods used in the manufacture of the product. Project assignments to evaluate and purchase a new machine tool or to determine the production routing for a new product are assigned to the engineering department. Jeff assigns the project to the appropriate section, and, under the direction of a project engineer, the project is completed.

Exhibit I. The Tool Division of National Corporation

Tool Division of National Corporation

The project engineer works with all the departments reporting to the vice president, including production, personnel, plant engineering, product design (the project engineer’s link to sales), and time study. As an example of the working relationship, the project engineer selects the location of the new machine and devises instructions for its operation with production. With personnel the engineer establishes the job descriptions for the new jobs as well as for the selection of people to work on the new machine. The project engineer works with plant engineering on the moving of the machine to the proper location and instructs plant engineering on the installation and services required (air, water, electricity, gas, etc.). It is very important that the project engineer work very closely with the product design department, which develops the design of the product to be sold. Many times the product designed is too ambitious an undertaking or cannot be economically produced. Interaction between departments is essential in working out such problems.

After the new machine is installed, an operator is selected and the machine is ready for production. Time study, with the project engineer’s help, then establishes the incentive system for the job.

Often a customer requests certain tolerances that cannot be adhered to by manufacturing. In such a case, the project engineer contacts the product design department, which contacts the sales department, which in turn contacts the customer. The communication process is then reversed, and the project engineer gets an answer. Based on the number of questions, the total process may take four to five weeks.

As the company is set up, the engineering department has no authority over time study, production, product design, or other areas. The only way that the project engineer can get these departments to make commitments is through persuasion or through the chief engineer, who could go to the vice president of manufacturing and engineering. If the engineer is convincing, the vice president will dictate to the appropriate manager what must be done.

Salaries in all departments of the company are a closely guarded secret. Only the vice president, the appropriate department manager, and the individual know the exact salary. Don Wolinski, the vice president of manufacturing and engineering, pointed out that this approach was the “professional way” and an essential aspect of smooth business operations.


Jeff Pankoff, the chief engineer for National, flew to Southern California to one of National’s (tool) plants. Ben Ehlke, manager of the Southern California plant, wanted to purchase a computer numerical controlled (CNC) machining center for The Ill-Fated Project

$250,000. When the request came to Jeff for approval, he had many questions and wanted some face-to-face communication.

The Southern California plant supplied the aircraft industry, and one airplane company provided 90 percent of the Southern California plant’s sales. Jeff was mainly concerned about the sales projections used by Ehlke in justifying the machining center. Ehkle pointed out that his projections were based on what the airplane company had told him they expected to buy out the next five years. Since this estimate was crucial to the justification, Jeff suggested that a meeting be arranged with the appropriate people at the airplane company to explore these projections. Since the local National sales representative was ill, the distributor salesman, Jack White, accompanied Jeff and Ben. While at the airplane company (APC), the chief tool buyer of APC, Tom Kelly, was informed that Jeff was there. Jeff received a message from the receptionist that Tom Kelly wanted to see him before he left the building. After the sales projections were reviewed and Jeff was convinced that they were as accurate and as reliable as they possibly could be, he asked the receptionist to set up an appointment with Tom Kelly.

When Jeff walked into Kelly’s office the fireworks began. He was greeted with, “What’s wrong with National? They refused to quote on this special part. We sent them a print and asked National for their price and delivery, indicating it could turn into a sizable order. They turned me down flat saying that they were not tooled up for this business. Now I know that National is tops in the field and that National can provide this part. What’s wrong with your sales department?”

All this came as a complete surprise to Jeff. The distributor salesman knew about it but never thought to mention it to him. Jeff looked at the part print and asked, “What kind of business are you talking about?” Kelly said, without batting an eye, “$40 million per year.”

Jeff realized that National had the expertise to produce the part and would require only one added machine (a special press costing $20,000) to have the total manufacturing capability. Jeff also realized he was in an awkward situation. The National sales representative was not there, and he certainly could not speak for sales. However, a $40 million order could not be passed over lightly. Kelly indicated that he would like to see National get 90 percent of the order if they would only quote on the job. Jeff told Kelly that he would take the information back and discuss it with the vice presidents of sales, manufacturing, and engineering and that most likely the sales vice president would contact him next.

On the return flight, Jeff reviewed in his mind his meeting with Kelly. Why did Bob Jones, National’s sales vice president, refuse to quote? Did he know about the possible $40 million order? Although Jeff wasn’t in sales, he decided that he would do whatever possible to land this order for National. That evening Jack White called from California. Jack said he had talked to Kelly after Jeff left and told Kelly that if anybody could make this project work, it would be Jeff Pankoff. Jeff suggested that Jack White call Bob Jones with future reports concerning this project.

The next morning, before Jeff had a chance to review his mail, Bob Jones came storming into his office. “Who do you think you are committing National to accept an order on your own without even a sales representative present? You

know that all communication with a customer is through sales.”

Jeff replied, “Let me explain what happened.”

After Jeff’s explanation, Jones said, “Jeff, I hear what you’re saying, but no matter what the circumstances, all communications with any customer must go through proper channels.”

Following the meeting with Jones, Jeff went to see Wolinski, his boss. He filled Wolinski in on what had happened. Then he said, “Don, I’ve given this project considerable thought. Jones is agreeable to quoting this job. However, if we follow our normal channels, we will experience too many time delays and problems. Through the various stages of this project, the customer will have many questions and changes and will require continuous updating. Our current system will not allow this to happen. It will take work from all departments to implement this project, and unless all departments work under the same priority system, we won’t have a chance. What we need, Don, is project management. Without this approach where one man heads the project with authority from the top, we just can’t make it work.”

Wolinski looked out the window and said, “We have been successful for many years using our conventional approach to project work. I grant you that we have not had an order of this magnitude to worry about, but I see no reason why we should change even if the order were for $100 million.”

“Don, project management is the only way to handle this type of project. With $40 million at stake we can’t afford not to use this approach.”

“Listen Jeff, your problem is you take seminars given by these ivory tower professors and you think you’re an expert. I’ve been in this business for forty years and I know how to handle this job—and it isn’t through project management. I’ll call a meeting of all concerned department managers so we can get started on quoting this job.”

That afternoon, Jeff and the other five department managers were summoned to a meeting in Wolinski’s office. Wolinski summarized the situation and informed the assembled group that Jeff would be responsible for the determination of the methods of manufacture and the associated manufacturing costs that would be used in the quotation. The method of manufacture, of course, would be based on the design of the part provided by product design. Wolinski appointed Jeff and Waldo Novak, manager of product design, as coheads of the project. He further advised that the normal channels of communication with sales through the product design manager would continue as usual on this project.

The project began. Jeff spent considerable time requesting clarification of the drawings submitted by the customer. All these communications went through Waldo. Before the manufacturing routing could be established for quotation purposes, questions concerning the drawings had to be answered. The customer was getting anxious The Ill-Fated Project

to receive the quotation because its management had to select a supplier within eight weeks. One week was already lost owing to communication delay. Wolinski decided that to speed up the quoting process he would send Jeff and Waldo along with Jones, the sales vice president, to see the customer. This meeting at APC helped clarify many questions. After Jeff returned, he began laying out the alternative routing for the parts. He assigned two of his most creative technicians and an engineer to run isolated tests on the various methods of manufacturing. From the results he would then finalize the routing that would be used for quoting. Two weeks of the eight were gone, but Jeff was generally pleased until the phone rang. It was Waldo.

“Say, Jeff, I think if we change the design on the back side of the part, it will add to its strength. In fact, I’ve assigned one of my men to review this and make this change, and it looks good.”

While this conversation was going on, Wolinski popped into Jeff’s office and said that sales had promised that National would ship APC a test order of 100 pieces in two weeks. Jeff was irate. Product design was changing the product. Sales was promising delivery of a test order that no one could even describe yet.

Needless to say, the next few days were long and difficult. It took three days for Jeff and Waldo to resolve the design routing problem. Wolinski stayed in the background and would not make any position statement except that he wanted everything “yesterday.” By the end of the third week the design problem was resolved, and the quotation was prepared and sent out to the customer. The quotation was acceptable to APC pending the performance of the 100 test parts.

At the start of the fourth week, Jeff, with the routing in hand, went to Charlie

Henry, the production manager, and said he needed 100 parts by Friday.

Charlie looked at the routing and said, “The best I can do is a two-week delivery.” After discussing the subject for an hour, the two men agreed to see Wolinski. Wolinski said he’d check with sales and attempt to get an extension of one week. Sales asked the distributor salesman to request an extension. Jack White was sure it would be okay so he replied to Bob Jones without checking that the added week was in fact acceptable.

The 100 pieces went out in three weeks rather than two. That meant the project was at the end of the sixth week and only two remained. Inspection received the test pieces on Monday of the seventh week and immediately reported them not to be in specification. Kelly was upset. He was counting heavily on National to provide these parts. Kelly had received four other quotations and test orders from National’s competitors. The prices were similar, and the test parts were to specification. However, National’s parts, although out of specification, looked better than their competitors’. Kelly reminded Jones that the customer now had only nine days left before the contract would be let. That meant the 100 test parts had to be made in nine days. Jones immediately called Wolinski, who agreed to talk to his people to try to accomplish this.

The tools were shipped in eleven days, two days after the customer had awarded orders to three of National’s competitors. Kelly was disappointed in National’s performance but told Jones that National would be considered for next year’s contract, at least a part of it.

Jeff, hearing from Waldo that National lost the order, returned to his office, shut the door, and thought of the hours, nearly round the clock, that were spent on this job. Hours were wasted because of poor communications, nonuniform priorities, and the fact that there was no project manager. “I wonder if Wolinski learned his lesson; probably not. This one cost the company at least $6 million in profits, all because project management was not used.” Jeff concluded that his work was really cut out for him. He decided that he must convince Wolinski and others of the advantages of using project management. Although Wolinski had attended a one-day seminar on project management two years ago, Jeff decided that one of his objectives during the coming year would be to get Wolinski to the point where he would, on his own, suggest becoming more knowledgeable concerning project management. Jeff’s thought was that if the company was to continue to be profitable it must use project management.

The phone rang, it was Wolinski. He said, “Jeff, do you have a moment to come down to my office? I’d like to talk about the possibility of using, on a trial basis, this project management concept you mentioned to me a few months ago.”

Philip Condit and the Boeing 777: From Design and Development to Producton and Sales*

Following his promotion to Boeing CEO in 1988, Frank Shrontz looked for ways to stretch and upgrade the Boeing 767—an eight-year-old wide-body twin jet— in order to meet Airbus competition. Airbus had just launched two new 300-seat wide-body models, the two-engine A330 and the four-engine A340. Boeing had no 300-seat jetliner in service, nor did the company plan to develop such a jet.

To find out whether Boeing’s customers were interested in a double-decker 767, Philip Condit, Boeing Executive Vice President and future CEO (1996) met with United Airlines Vice President Jim Guyette. Guyette rejected the idea outright, claiming that an upgraded 767 was no match to Airbus’s new model transports. Instead, Guyette urged Boeing to develop a brand new commercial jet, the most advanced airplane of its generation.1 Shrontz had heard similar suggestions from other airline carriers. He reconsidered Boeing’s options, and decided to abandon the 767 idea in favor of a new aircraft program. In December 1989, accordingly, he announced the 777 project and put Philip Condit in charge of its management. Boeing had launched the 777 in 1990, delivered the first jet in 1995, and by February 2001, 325 B-777s were flying in the services of the major international and U.S. airlines.2

*This case was presented by Isaac Cohen, San Jose State University, at the 2000 North American Case Research Association (NACRA) workshop. Reprinted by permission from the Case Research Journal. Copyright 2000 by Isaac Cohen and the North American Case Research Association.

Condit faced a significant challenge in managing the 777 project. He wanted to create an airplane that was preferred by the airlines at a price that was truly competitive. He sought to attract airline customers as well as cut production costs, and he did so by introducing several innovations—both technological and managerial—in aircraft design, manufacturing, and assembly. He looked for ways to revitalize Boeing’s outmoded engineering production system, and update Boeing’s manufacturing strategies. And to achieve these goals, Condit made continual efforts to spread the 777 program-innovations companywide.

Looking back at the 777 program, this case focuses on Condit's efforts. Was the 777 project successful, and was it cost effective? Would the development of the 777 allow Boeing to diffuse the innovations in airplane design and production beyond the 777 program? Would the development of the 777’s permit Boeing to revamp and modernize its aircraft manufacturing system? Would the making and selling of the 777 enhance Boeing competitive position relative to Airbus, its only remaining rival?


Commercial aircraft manufacturing was an industry of enormous risks where failure was the norm, not the exception. The number of large commercial jet makers had been reduced from four in the early 1980s—Boeing, McDonnell Douglas, Airbus, and Lockheed—to two in late 1990s, turning the industry into a duopoly, and pitting the two survivors—Boeing and Airbus—one against the other. One reason why aircraft manufacturers so often failed was the huge cost of product development.

Developing a new jetliner required an up-front investment of up to $15 billion (2001 dollars), a lead time of five to six years from launch to first delivery, and the ability to sustain a negative cash flow throughout the development phase. Typically, to break even on an entirely new jetliner, aircraft manufacturers needed to sell a minimum of 300 to 400 planes and at least 50 planes per year.3 Only a few commercial airplane programs had ever made money.

The price of an aircraft reflected its high development costs. New model prices were based on the average cost of producing 300 to 400 planes, not a single plane. Aircraft pricing embodied the principle of learning by doing, the so called learning curve4: workers steadily improved their skills during the assembly process, and as a result, labor cost fell as the number of planes produced rose.

The high and increasing cost of product development prompted aircraft manufacturers to utilize subcontracting as a risk-sharing strategy. For the 747, the 767, and the 777, the Boeing Company required subcontractors to share a substantial part of the airplane’s development costs. Airbus did the same with its own latest models. Risk sharing subcontractors performed detailed design work and The Boeing Company

assembled major subsections of the new plane while airframe integrators (i.e., aircraft manufacturers) designed the aircraft, integrated its systems and equipment, assembled the entire plane, marketed it, and provided customer support for twenty to thirty years. Both the airframe integrators and their subcontractors were supplied by thousands of domestic and foreign aircraft components manufacturers.5

Neither Boeing, nor Airbus, nor any other post-war commercial aircraft manufacturer produced jet engines. A risky and costly venture, engine building had become a highly specialized business. Aircraft manufacturers worked closely with engine makers—General Electric, Pratt and Whitney, and Rolls Royce—to set engine performance standards. In most cases, new airplanes were offered with a choice of engines. Over time, the technology of engine building had become so complex and demanding that it took longer to develop an engine than an aircraft. During the life of a jetliner, the price of the engines and their replacement parts was equal to the entire price of the airplane.6

A new model aircraft was normally designed around an engine, not the other way around. As engine performance improved, airframes were redesigned to exploit the engine’s new capabilities. The most practical way to do so was to stretch the fuselage and add more seats in the cabin. Aircraft manufacturers deliberately designed flexibility into the airplane so that future engine improvements could facilitate later stretching. Hence the importance of the “family concept” in aircraft design, and hence the reason why aircraft manufacturers introduced families of planes made up of derivative jetliners built around a basic model, not single, standardized models.7

The commercial aircraft industry, finally, gained from technological innovations in two other industries. More than any other manufacturing industry, aircraft construction benefited from advances in material applications and electronics. The development of metallic and nonmetallic composite materials played a key role in improving airframe and engine performance. On the one hand, composite materials that combined light weight and great strength were utilized by aircraft manufacturers; on the other, heat-resisting alloys that could tolerate temperatures of up to 3,000 degrees were used by engine makers. Similarly, advances in electronics revolutionized avionics. The increasing use of semiconductors by aircraft manufacturers facilitated the miniaturization of cockpit instruments, and more important, it enhanced the use of computers for aircraft communication, navigation, instrumentation, and testing.8 The use of computers contributed, in addition, to the design, manufacture, and assembly of new model aircraft.


The history of the Boeing company may be divided into two distinct periods: the piston era and the jet age. Throughout the piston era, Boeing was essentially a military contractor producing fighter aircraft in the 1920s and 1930s, and bombers during World War II. During the jet age, beginning in the 1950s, Boeing had become the world’s largest manufacturer of commercial aircraft, deriving most of its revenues from selling jetliners.

Boeing’s first jet was the 707. The introduction of the 707 in 1958 represented a major breakthrough in the history of commercial aviation; it allowed Boeing to gain a critical technological lead over the Douglas Aircraft Company, its closer competitor. To benefit from government assistance in developing the 707, Boeing produced the first jet in two versions: a military tanker for the Air Force (k-135) and a commercial aircraft for the airlines (707-120). The company, however, did not recoup its own investment until 1964, six years after it delivered the first 707, and twelve years after it had launched the program. In the end, the 707 was quite profitable, selling 25 percent above its average cost.9 Boeing retained the essential design of the 707 for all its subsequent narrow-body singleaisle models (the 727, 737, and 757), introducing incremental design improvements, one at a time.10 One reason why Boeing used shared design for future models was the constant pressure experienced by the company to move down the learning curve and reduce overall development costs.

Boeing introduced the 747 in 1970. The development of the 747 represented another breakthrough; the 747 wide body design was one of a kind; it had no real competition anywhere in the industry. Boeing bet the entire company on the success of the 747, spending on the project almost as much as the company’s total net worth in 1965, the year the project started.11 In the short-run, the outcome was disastrous. As Boeing began delivering its 747s, the company was struggling to avoid bankruptcy. Cutbacks in orders as a result of a deep recession, coupled with production inefficiencies and escalating costs, created a severe cash shortage that pushed the company to the brink. As sales dropped, the 747’s break-even point moved further and further into the future.

Yet, in the long run, the 747 program was a triumph. The Jumbo Jet had become Boeing’s most profitable aircraft and the industry’s most efficient jetliner. The plane helped Boeing solidify its position as the industry leader for years to come, leaving McDonnell Douglas far behind, and forcing the Lockheed Corporation to exit the market. The new plane, furthermore, contributed to Boeing’s manufacturing strategy in two ways. First, as Boeing increased its reliance on outsourcing, six major subcontractors fabricated 70 percent of the value of the 747 airplane,12 thereby helping Boeing reduce the project’s risks. Second, for the first time, Boeing applied the family concept in aircraft design to a wide-body jet, building the 747 with wings large enough to support a stretched fuselage with bigger engines, and offering a variety of other modifications in the 747’s basic design. The 747-400 (1989) is a case in point. In 1997, Boeing sold the stretched and upgraded 747-400 in three versions, a standard jet, a freighter, and a “combi” (a jetliner whose main cabin was divided between passenger and cargo compartments).13

The Boeing Company

Boeing developed other successful models. In 1969, Boeing introduced the 737, the company’s narrow-body flagship, and in 1982 Boeing put into service two additional jetliners, the 757 (narrow-body) and the 767 (wide-body). By the early 1990s, the 737, 757, and 767 were all selling profitably. Following the introduction of the 777 in 1995, Boeing’s families of planes included the 737 for short-range travel, the 757 and 767 for medium-range travel, and the 747 and 777 for medium- to long-range travel (Exhibit I).

In addition to building jetliners, Boeing also expanded its defense, space, and information businesses. In 1997, the Boeing Company took a strategic gamble, buying the McDonnell Douglas Company in a $14 billion stock deal. As a result of the merger, Boeing had become the world’s largest manufacturer of military aircraft, NASA’S largest supplier, and the Pentagon’s second largest contractor (after Lockheed). Nevertheless, despite the growth in its defense and space businesses, Boeing still derived most of its revenues from selling jetliners. Commercial aircraft revenues accounted for 59 percent of Boeing’s $49 billion sales in 1997 and 63 percent of Boeing’s $56 billion sales in 1998.14

Following its merger with McDonnell, Boeing had one remaining rival:

Airbus Industrie.15 In 1997, Airbus booked 45 percent of the worldwide orders for commercial jetliners16 and delivered close to 1/3 of the worldwide industry output. In 2000, Airbus shipped nearly 2/5 of the worldwide industry output (Exhibit II).

Airbus’s success was based on a strategy that combined cost leadership with technological leadership. First, Airbus distinguished itself from Boeing by incorporating the most advanced technologies into its planes. Second, Airbus managed to cut costs by utilizing a flexible, lean production manufacturing system that stood in a stark contrast to Boeing’s mass production system.17

Exhibit I. Total number of commercial jetliners delivered by the Boeing Company, 1958–2/2001a


No. Delivered

First Delivery


1,010 (retired)



1,831 (retired)






















aMcDonnell Douglas commercial jetliners (the MD-11, MD-80, and MD-90) are excluded.

Sources: Boeing Commercial Airplane Group, Announced Orders and Deliveries as of 12/31/97; The Boeing Company 1998 Annual Report, p. 35.

“Commercial Airplanes: Order and Delivery Summary,” http://www.Boeing com/commercial/orders/index.html>. Retrieved from Web, March 20, 2001.

Exhibit II. Market share of shipments of commercial aircraft, Boeing, McDonnell

Douglas (MD),Airbus, 1992–2000




































Source: Aerospace Facts and Figures, 1997–98, p. 34; Wall Street Journal (December 3, 1998, and January 12, 1999); The Boeing Company 1997 Annual Report, p. 19; data supplied by Mark Luginbill, Airbus Communication Director (November 16, 1998, February 1, 2000, and March 20, 2001).

As Airbus prospered, the Boeing company was struggling with rising costs, declining productivity, delays in deliveries, and production inefficiencies. Boeing Commercial Aircraft Group lost $1.8 billion in 1997 and barely generated any profits in 1998.18 All through the 1990s, the Boeing Company looked for ways to revitalize its outdated production manufacturing system on the one hand, and to introduce leading edge technologies into its jetliners on the other. The development and production of the 777, first conceived of in 1989, was an early step undertaken by Boeing managers to address both problems.


The 777 program was Boeing’s single largest project since the completion of the 747. The total development cost of the 777 was estimated at $6.3 billion and the total number of employees assigned to the project peaked at nearly 10,000. The 777’s twin-engines were the largest and most powerful ever built (the diameter of the 777’s engine equaled the 737’s fuselage), the 777’s construction required 132,000 uniquely engineered parts (compared to 70,000 for the 767), the 777’s seat capacity was identical to that of the first 747 that had gone into service in 1970, and its manufacturer empty weight was 57 percent greater than the 767’s. Building the 777 alongside the 747 and 767 at its Everett plant near Seattle, Washington, Boeing enlarged the plant to cover an area of seventy-six football fields.19

Boeing’s financial position in 1990 was unusually strong. With a 21 percent rate of return on stockholder equity, a long-term debt of just 15 percent of capitalization, and a cash surplus of $3.6 billion, Boeing could gamble comfortably.20 There was no need to bet the company on the new project as had been the case with the 747, or to borrow heavily, as had been the case with the 767. Still, the decision to develop the 777 was definitely risky; a failure of the new jet might have triggered an irreversible decline of the Boeing Company and threatened its future survival.

A Consumer-Driven Product

The decision to develop the 777 was based on market assessment—the estimated future needs of the airlines. During the fourteen-year period, 1991–2005, Boeing market analysts forecasted a +100 percent increase in the number of passenger miles traveled worldwide, and a need for about 9,000 new commercial jets. Of the total value of the jetliners needed in 1991–2005, Boeing analysts forecasted a $260 billion market for wide body jets smaller than the 747. An increasing number of these wide-body jets were expected to be larger than the 767.21


To manage the risk of developing a new jetliner, aircraft manufacturers had first sought to obtain a minimum number of firm orders from interested carriers, and only then commit to the project. Boeing CEO Frank Shrontz had expected to obtain one hundred initial orders of the 777 before asking the Boeing board to launch the project, but as a result of Boeing’s financial strength on the one hand, and the increasing competitiveness of Airbus on the other, Schrontz decided to seek the board’s approval earlier. He did so after securing only one customer: United Airlines. On October 12, 1990, United had placed an order for thirty-four 777s and an option for an additional thirty-four aircraft, and two weeks later, Boeing’s board of directors approved the project.22 Negotiating the sale, Boeing and United drafted a handwritten agreement (signed by Philip Condit and Richard Albrecht, Boeing’s executive vice presidents, and Jim Guyette, United’s executive vice president) that granted United a larger role in designing the 777 than the role played by any airline before. The two companies pledged to cooperate closely in developing an aircraft with the “best dispatch reliability in the industry” and the “greatest customer appeal in the industry.” “We will endeavor to do it right the first time with the highest degree of professionalism” and with “candor, honesty, and respect” [the agreement read]. Asked to comment on the agreement, Philip Condit, said: “We are going to listen to our customers and understand what they want. Everybody on the program has that attitude.”23 Gordon McKinzie, United’s 777 program director agreed: “In the past we’d get brochures on a new airplane and its options. . . wait four years for delivery, and hope we’d get what we ordered. This time Boeing really listened to us.”24

Condit invited other airline carriers to participate in the design and development phase of the 777. Altogether, eight carriers from around the world (United, Delta, American, British Airways, Qantas, Japan Airlines, All Nippon Airways, and Japan Air System) sent full-time representatives to Seattle; British Airways alone assigned seventy-five people at one time. To facilitate interaction between its design engineers and representatives of the eight carriers, Boeing introduced an initiative called “Working Together.” “If we have a problem,” a British Airways production manager explained, “we go to the source—design engineers on the IPT [Integrated Product Teams], not service engineer(s). One of the frustrations on the 747 was that we rarely got to talk to the engineers who were doing the work.”25

“We have definitely influenced the design of the aircraft,” a United 777 manager said, mentioning changes in the design of the wing panels that made it easier for airline mechanics to access the slats (slats, like flaps, increased lift on takeoffs and landings), and new features in the cabin that made the plane more attractive to passengers.26 Of the 1,500 design features examined by representatives of the airlines, Boeing engineers modified 300 (see Exhibit III). Among changes made by Boeing was a redesigned overhead bin that left more stand-up headroom for passengers (allowing a six-foot-three tall passenger to walk from aisle to aisle), “flattened” side walls that provided the occupant of the window seat with more room, overhead bin doors that opened down and made it possible for shorter passengers to lift baggage into the overhead compartment, a redesigned reading lamp that enabled flight attendants to replace light bulbs, a task formerly performed by mechanics, and a computerized flight deck management

Exhibit III. The 777: Selected design features proposed by Boeing airline customers and adapted by the Boeing Company

Boeing 777 Selected design features proposed by Boeing airline customers

Source: The Boeing Company.

A Consumer-Driven Product

system that adjusted cabin temperature, controlled the volume of the public address system, and monitored food and drink inventories.27

More important were changes in the interior configuration (layout plan) of the aircraft. To be able to reconfigure the plane quickly for different markets of varying travel ranges and passenger loads, Boeing’s customers sought a flexible plan of the interior. On a standard commercial jet, kitchen galleys, closets, lavatories, and bars were all removable in the past, but were limited to fixed positions where the interior floor structure was reinforced to accommodate the “wet” load. On the 777, by contrast, such components as galleys and lavatories could be positioned anywhere within several “flexible zones” designed into the cabin by the joint efforts of Boeing engineers and representatives of the eight airlines. Similarly, the flexible design of the 777’s seat tracks made it possible for carriers to increase the number of seat combinations as well as reconfigure the seating arrangement quickly. Flexible configuration resulted, in turn, in significant cost savings; airlines no longer needed to take the aircraft out of service for an extended period of time in order to reconfigure the interior.28

The airline carriers also influenced the way in which Boeing designed the 777 cockpit. During the program definition phase, representatives of United Airlines, British Airways, and Qantas—three of Boeing’s clients whose fleets included a large number of 747-400s—asked Boeing engineers to model the 777 cockpit on the 747-400s. In response to these requests, Boeing introduced a shared 747/777 cockpit design that enabled its airline customers to use a single pool of pilots for both aircraft types at a significant cost savings.29

Additionally, the airline carriers urged Boeing to increase its use of avionics for in-flight entertainment. The 777, as a consequence, was equipped with a fully computerized cabin. Facing each seat on the 777, and placed on the back of the seat in front, was a combined computer and video monitor that featured movies, video programs, and interactive computer games. Passengers were also provided with a digital sound system comparable to the most advanced home stereo available, and a telephone. About 40 percent of the 777’s total computer capacity was reserved for passengers in the cabin.30

The 777 was Boeing’s first fly by wire (FBW) aircraft, an aircraft controlled by a pilot transmitting commands to the moveable surfaces (rudder, flaps, etc.) electrically, not mechanically. Boeing installed a state of the art FBW system on the 777 partly to satisfy its airline customers, and partly to challenge Airbus’ leadership in flight control technology, a position Airbus had held since it introduced the world’s first FBW aircraft, the A-320, in 1988.

Lastly, Boeing customers were invited to contribute to the design of the 777’s engine. Both United Airlines and All Nippon Airlines assigned service engineers to work with representatives of Pratt and Whitney (P&W) on problems associated with engine maintenance. P&W held three specially scheduled “airline conferences.” At each conference, some forty airline representatives clustered around a

Exhibit IV. 777 supplier contracts

U.S. Suppliers of Structural Components

Astech/MCI Santa Ana, CA

Primary exhaust cowl assembly (plug and nozzle)

Grumman Aerospace Bethpage, NY

Spoilers, inboard flaps

Kaman Bloomfield, CT

Fixed training edge

Rockwell Tulsa, OK

International Suppliers of Structural Components

Floor beams, wing leading edge slats

AeroSpace Technologies of Australia Australia


Alenia Italy

Wing outboard flaps, radome

Embrace-Empresa Brasiera Brazil de Aeronautica

Dorsal fin, wingtip assembly

Hawker de Havilland Australia


Korean Air Korea

Flap support fairings, wingtip assembly

Menasco Aerospace/ Canada/France


Main and nose landing gears

Mitsubishi Heavy Industries, Japan

Fuselage panels and doors, wing center

Kawasaki Heavy Industries,

section wing-to-body fairing, and

and Fuji Heavy Industriesa

wing in-spar ribs

Short Brothers Ireland

Nose landing gear doors

Singapore Aerospace Singapore Manufacturing

U.S. Suppliers of Systems and Equipment

Nose landing gear doors

AlliedSignal Aerospace

Torrance, CA

Cabin pressure control system, air

Company, AiResearch

supply control system, integrated


system controller, ram air turbine

Bendix Wheels and

South Bend, IN

Wheel and brakes

Garrett Divisions

Phoenix/Tempe, AZ

Auxillary power unit (APU), air-driven unit


Troy, OH

Wheel and brakes

Dowly Aerospace

Los Angeles, CA

Thrust reverser actuator system


Lynnwood, WA

Power supply electronics

E-Systems, Montek Division

Salt Lake City, UT

Stabilizer trim control module, secondary hydraulic brake, optional folding wingtip system


Phoenix, AZ

Airplane information management

Coon Rapid, MN

system (AIMS), air data/inertial reference system (ADIRS)

Rockwell, Collins Division

Cedar Rapids, IA

Autopilot flight director system, electronic library system (ELS) displays

Sundstrand Corporation

Rockford, IL

Primary and backup electrical power systems

Teijin Seiki America

Redmond, WA

Power control units, actuator control electronics

United Technologies,

Windsor Lock, CT

Cabin air-conditioning and temperature

Hamilton Standard

control systems, ice protection



International Suppliers of Systems and Equipment

General Electric Company United Kingdom (GEC) Avionics

Primary flight computers

Smiths Industries United Kingdom

Integrated electrical management system (ELMS), throttle control system

actuator, fuel quantityindicating system (FQIS)

a Program partners

Source: James Woolsey, “777, Boeing’s New Large Twinjet,” Air Transport World (April 1994), p. 24.


A Family of Planes

full scale mock-up of the 777 engine and showed Pratt and Whitney engineers gaps in the design, hard-to-reach points, visible but inaccessible parts, and accessible but invisible components. At the initial conference, Pratt and Whitney picked up 150 airline suggestions, at the second, fifty, and at the third, ten more suggestions.31


Twelve international companies located in ten countries, and eighteen more U.S. companies located in twelve states, were contracted by Boeing to help manufacture the 777. Together, they supplied structural components as well as systems and equipment. Among the foreign suppliers were companies based in Japan, Britain, Australia, Italy, Korea, Brazil, Singapore, and Ireland; among the major U.S. subcontractors were the Grumman Corporation, Rockwell (later merged with Boeing), Honeywell, United Technologies, Bendix, and the Sunstrand Corporation (Exhibits IV and V). Of all foreign participants, the Japanese played the largest role. A consortium made up of Fuji Heavy Industries, Kawasaki Heavy Industries, and Mitsubishi Heavy Industries had worked with Boeing on its wide-body models since the early days of the 747. Together, the three Japanese subcontractors produced 20 percent of the value of the 777’s airframe (up from 15 percent of the 767s). A group of 250 Japanese engineers had spent a year in Seattle working on the 777 alongside Boeing engineers before most of its members went back home to begin production. The fuselage was built in sections in Japan and then shipped to Boeing’s huge plant at Everett, Washington for assembly.32

Boeing used global subcontracting as a marketing tool as well. Sharing design work and production with overseas firms, Boeing required overseas carriers to buy the new aircraft. Again, Japan is a case in point. In return for the contract signed with the Mitsubishi, Fuji, and Kawasaki consortium—which was heavily subsidized by the Japanese government—Boeing sold forty-six 777 jetliners to three Japanese air carriers: All Nippon Airways, Japan Airlines, and Japan Air System.33


From the outset, the design of the 777 was flexible enough to accommodate derivative jetliners. Because all derivatives of a given model shared maintenance, training, and operating procedures, as well as replacement parts and components, and because such derivatives enabled carriers to serve different markets at lower costs, Boeing’s clients were seeking a family of planes built around a basic model, not a single 777. Condit and his management team, accordingly, urged Boeing’s engineers to incorporate the maximum flexibility into the design of the 777.

Exhibit V. The builders of the Boeing 777

The builders of the Boeing 777

Source: Jeremy Main, “Corporate Performance: Betting on the 21st Century Jet,” Fortune (April 20, 1992), p. 104.

The 777’s design flexibility helped Boeing manage the project’s risks. Offering a family of planes based on a single design to accommodate future changes in customers’ preferences, Boeing spread the 777 project’s risks among a number of models all belonging to the same family.

The key to the 777’s design efficiency was the wing. The 777 wings, exceptionally long and thin, were strong enough to support vastly enlarged models. The first model to go into service, the 777-200, had a 209-foot-long fuselage, was designed to carry 305 passengers in three class configurations, and had a travel range of 5,900 miles in its original version (1995), and up to 8,900 miles in its extended version (1997). The second model to be introduced (1998), the 777-300, Digital Design

had a stretched fuselage of 242 feet (ten feet longer than the 747), was configured for 379 passengers (three-class), and flew to destinations of up to 6,800 miles away. In all-tourist class configuration, the stretched 777-300 could carry as many as 550 passengers.34


The 777 was the first Boeing jetliner designed entirely by computers. Historically, Boeing had designed new planes in two ways: paper drawings and full-size models called mock-ups. Paper drawings were two dimensional and therefore insufficient to account for the complex construction of the three dimensional airplane. Full-scale mock-ups served as a backup to drawings.

Boeing engineers used three classes of mock-ups. Made up of plywood or foam, class 1 mock-ups were used to construct the plane’s large components in three dimensions, refine the design of these components by carving into the wood or foam, and feed the results back into the drawings. Made partly of metal, class 2 mock-ups addressed more complex problems such as the wiring and tubing of the airframe, and the design of the machine tools necessary to cut and shape the large components. Class 3 mock-ups gave the engineers one final opportunity to refine the model and thereby reduce the need to keep on changing the design during the actual assembly process or after delivery.35

Despite the engineers’ efforts, many parts and components did not fit together on the final assembly line but rather “interfered” with each other, that is, overlapped in space. The problem was both pervasive and costly, Boeing engineers needed to rework and realign all overlapping parts in order to join them together.

A partial solution to the problem was provided by the computer. In the last quarter of the twentieth century, computer aided design was used successfully in car manufacture, building construction, machine production, and several other industries; its application to commercial aircraft manufacturing came later, both in the United States and in Europe. Speaking of the 777, Dick Johnson, Boeing chief engineer for digital design, noted the “tremendous advantage” of computer application:

With mock-ups, the . . . engineer had three opportunities at three levels of detail to check his parts, and nothing in between. With Catia [Computer aided three dimensional, interactive application] he can do it day in and day out over the whole development of the airplane.36

Catia was a sophisticated computer program that Boeing bought from Dassault Aviation, a French fighter planes builder. IBM enhanced the program to improve image manipulation, supplied Boeing with eight of its largest mainframe computers, and connected the mainframes to 2,200 computer terminals that Boeing distributed among its 777 design teams. The software program showed on a screen exactly how parts and components fit together before the actual manufacturing process took place.37

A digital design system, Catia had five distinctive advantages. First, it provided the engineers with 100 percent visualization, allowing them to rotate, zoom, and “interrogate” parts geometrically in order to spotlight interferences. Second, Catia assigned a numerical value to each drawing on the screen and thereby helped engineers locate related drawings of parts and components, merge them together, and check for incompatibilities. Third, to help Boeing’s customers service the 777, the digital design system created a computer simulated human— a Catia figure playing the role of the service mechanic—who climbed into the three dimensional images and showed the engineers whether parts were serviceable and entry accessible. Fourth, the use of Catia by all 777 design teams in the United States, Japan, Europe, and elsewhere facilitated instantaneous communication between Boeing and its subcontractors and ensured the frequent updating of the design. And fifth, Catia provided the 777 assembly line workers with graphics that enhanced the narrative work instructions they received, showing explicitly on a screen how a given task should be performed.38


Teaming was another feature of the 777 program. About thirty integrated-level teams at the top and more than 230 design-build teams at the bottom worked together on the 777.39 All team members were connected by Catia. The integrated-level teams were organized around large sections of the aircraft; the DBTs around small parts and components. In both cases, teams were cross-functional, as Philip Condit observed:

If you go back . . . to earlier planes that Boeing built, the factory was on the bottom floor, and Engineering was on the upper floor. Both Manufacturing and Engineering went back and forth. When there was a problem in the factory, the engineer went down and looked at it. . . .

With 10,000 people [working on the 777], that turns out to be really hard. So you start devising other tools to allow you to achieve that—the design-build team. You break the airplane down and bring Manufacturing, Tooling, Planning, Engineering, Finance, and Materials all together [in small teams].40

Under the design-build approach, many of the design decisions were driven by manufacturing concerns. As manufacturing specialists worked alongside engineers, engineers were less likely to design parts that were difficult to produce and needed to be redesigned. Similarly, under the design-build approach, customers’ expectations as well as safety and weight considerations were all incorporated Design-Build Teams (DBTs)

into the design of the aircraft; engineers no longer needed to “chain saw”41 structural components and systems in order to replace parts that did not meet customers expectations, were unsafe, or were too heavy.

The design of the 777’s wing provides an example. The wing was divided into two integration-level teams, the leading-edge (the forward part of the wing) and the trailing-edge (the back of the wing) team. Next, the trailing-edge team was further divided into ten design-build teams, each named after a piece of the wing’s trailing edge (Exhibit VI). Membership in these DBTs extended to two groups of outsiders: representatives of the customer airlines and engineers employed by the foreign subcontractors. Made up of up to twenty members, each DBT decided its own mix of insiders and outsiders, and each was led by a team leader. Each DBT included representatives from six functional disciplines: engineering, manufacturing, materials, customer support, finance, and quality assurance. The DBTs met twice a week for two hours to hear reports from team members, discuss immediate goals and plans, divide responsibilities, set time lines, and take specific notes of all decisions taken.42 Described by a Boeing official as little companies, the DBTs enjoyed a high degree of autonomy from management supervision; team members designed their own tools, developed their own manufacturing plans, and wrote their own contracts with the program management, specifying deliverables, resources, and schedules. John Monroe, a Boeing 777 senior project manager remarked:

The team is totally responsible. We give them a lump of money to go and do th[eir] job. They decide whether to hire a lot of inexpensive people or to trade numbers for resources. it's unprecedented. We have some $100 million plus activities led by non-managers.43

Exhibit VI. The ten DBTs (“little companies”) responsible for the wing’s trailing edge

  • Flap Supports Team
  • Inboard Flap Team
  • Outboard Flap Team
  • Flaperon[1] Team
  • Ailerona Team
  • Inboard Fixed Wing and Gear Support Team
  • Main Landing Gear Doors Team
  • Spoilers[2] Team
  • Fairings[3] Team


An additional aspect of the 777 program was the empowering of assembly line workers. Boeing managers encouraged factory workers at all levels to speak up, offer suggestions, and participate in decision making. Boeing managers also paid attention to a variety of “human relations” problems faced by workers, problems ranging from childcare and parking to occupational hazards and safety concerns.44

All employees entering the 777 program—managers, engineers, assembly line workers, and others—were expected to attend a special orientation session devoted to the themes of team work and quality control. Once a quarter, the entire “777 team” of up to 10,000 employees met offsite to hear briefings on the aircraft status. Dressed casually, the employees were urged to raise questions, voice complaints, and propose improvements. Under the 777 program, managers met frequently to discuss ways to promote communication with workers. Managers, for example, “fire fought” problems by bringing workers together and empowering them to offer solutions. In a typical firefight session, Boeing 777 project managers learned from assembly line workers how to improve the process of wiring and tubing the airframe’s interior: “staffing” fuselage sections with wires, ducts, tubs, and insulation materials before joining the sections together was easier than installing the interior parts all at once in a preassembled fuselage.45

Under the 777 program, in addition, Boeing assembly line workers also were empowered to appeal management decisions. In a case involving middle managers, a group of Boeing machinists sought to replace a nonretractable jig (a large device used to hold parts) with a retractable one in order to ease and simplify their jobs. Otherwise they had to carry heavy equipment loads up and down stairs. Again and again, their supervisors refused to implement the change. When the machinists eventually approached a factory manager, he inspected the jig personally, and immediately ordered the change.46

Under the 777 program, work on the shop floor was ruled by the Bar Chart. A large display panel placed at different work areas, the Bar Chart listed the name of each worker, his or her daily job description, and the time available to complete specific tasks. Boeing had utilized the Bar Chart system as a “management visibility system” in the past, but only under the 777 program was the system fully computerized. The chart showed whether assembly line workers were meeting or missing their production goals. Boeing industrial engineers estimated the time it took to complete a given task and fed the information back to the system’s computer. Workers ran a scanner across their ID badges and supplied the computer with the data necessary to log their job progress. Each employee “sold” his/her completed job to an inspector, and no job was declared acceptable unless “bought” by an inspector.47

Leadership and Management Style


The team in charge of the 777 program was led by a group of five vice presidents, headed by Philip Condit, a gifted engineer who was described by one Wall Street analyst as “a cross between a grizzly bear and a teddy bear. Good people skills, but furious in the marketplace.”48 Each of the five vice presidents rose through the ranks, and each had a twenty-five to thirty years experience with Boeing. All were men.49

During the 777 design phase, the five VPs met regularly every Tuesday morning in a small conference room at Boeing’s headquarters in Seattle in what was called the “Muffin Meeting.” There were no agendas drafted, no minutes drawn, no overhead projectors used, and no votes taken. The homemade muffins served during the meeting symbolized the informal tone of the forum. Few people outside the circle of five had ever attended these weekly sessions. Acting as an informal chair, Condit led a freewheeling discussion of the 777 project, asking each VP to say anything he had on his mind.50

The weekly session reflected Boeing’s sweeping new approach to management. Traditionally, Boeing had been a highly structured company governed by engineers. Its culture was secretive, formal, and stiff. Managers seldom interacted, sharing was rare, divisions kept to themselves, and engineers competed with each other. Under the 777 program, Boeing made serious efforts to abandon its secretive management style. Condit firmly believed that open communication among top executives, middle managers, and assembly line workers was indispensable for improving morale and raising productivity. He urged employees to talk to each other and share information, and he used a variety of management tools to do so: information sheets, orientation sessions, question and answer sessions, leadership meetings, regular workers as well as middle managers, Condit introduced a threeway performance review procedure whereby managers were evaluated by their supervisors, their peers, and their subordinates.51 Most important, Condit made teamwork the hallmark of the 777 project. In an address titled “Working Together: The 777 Story” and delivered in December 1992 to members of the Royal Aeronautics Society in London,52 Condit summed up his team approach:

[T]eam building is . . . very difficult to do well but when it works the results are dramatic. Teaming fosters the excitement of a shared endeavor and creates an atmosphere that stimulates creativity and problem solving. But building team[s] . . . is hard work. It doesn’t come naturally. Most of us are taught from an early age to compete and excel as individuals. Performance in school and performance on the job are usually measured by individual achievement. Sharing your ideas with others, or helping others to enhance their performance, is often viewed as contrary to one’s self interest.

This individualistic mentality has its place, but . . . it is no longer the most useful attitude for a workplace to possess in today’s world. To create a high performance organization, you need employees who can work together in a way that promotes continual learning and the free flow of ideas and information.


The 777 entered revenue service in June 1995. Since many of the features incorporated into the 777’s design reflected suggestions made by the airline carriers, pilots, mechanics, and flight attendants were quite enthusiastic about the new jet. Three achievements of the program, in airplane interior, aircraft design, and aircraft manufacturing, stood out.

Configuration Flexibility

The 777 offered carriers enhanced configuration flexibility. A typical configuration change took only seventy-two hours on the 777 compared to three weeks in competing aircraft. In 1992, the Industrial Design Society of America granted Boeing its Excellence Award for building the 777 passenger cabin, honoring an airplane interior for the first time.53

Digital Design

The original goal of the program was to reduce “change, error, and rework” by 50 percent, but engineers building the first three 777s managed to reduce such modification by 60 percent to 90 percent. Catia helped engineers identify more than 10,000 interferences that would have otherwise remained undetected until assembly, or until after delivery. The first 777 was only 0.023 inch short of perfect alignment, compared to as much as 0.5 inch on previous programs.54 Assembly line workers confirmed the beneficial effects of the digital design system. “The parts snap together like Lego blocks,” said one mechanics.55 Reducing the need for reengineering, replanning, retooling, and retrofitting, Boeing’s innovative efforts were recognized yet again. In 1993, the Smithsonian Institution honored the Boeing 777 division with its Annual Computerworld Award for the manufacturing category.56


Boeing 777 assembly line workers expressed a high level of job satisfaction under the new program. “it's a whole new world,” a fourteen-year Boeing veteran mechanic said, “I even like going to work. it's bubbly. it's clean. Everyone has confidence.”57 “We never used to speak up,” said another employee, “didn’t dare. Now factory workers are treated better and are encouraged to offer ideas.”58 Although the Bar Chart system required Boeing 777 mechanics to work harder and faster as they moved down the learning curve, their principal union organization, the International Association of Machinists, was pleased with Boeing’s new approach to labor–management relations. A union spokesman reported that under the 777 program, managers were more likely to treat problems as Unresolved Problems and Lessons Learned

opportunities from which to learn rather than mistakes for which to blame. Under the 777 program, the union representative added, managers were more respectful of workers’ rights under the collective bargaining agreement.59


Notwithstanding Boeing’s success with the 777 project, the cost of the program was very high. Boeing did not publish figures pertaining to the total cost of Catia. But a company official reported that under the 777 program, the 3D digital design process required 60 percent more engineering resources than the older, 2D drawing-based design process. One reason for the high cost of using digital design was slow computing tools: Catia’s response time often lasted minutes. Another was the need to update the design software repeatedly. Boeing revised Catia’s design software four times between 1990 and 1996, making the system easier to learn and use. Still, Catia continued to experience frequent software problems. Moreover, several of Boeing’s outside suppliers were unable to utilize Catia’s digital data in their manufacturing process.60

Boeing faced training problems as well. One challenging problem, according to Ron Ostrowski, director of 777 engineering, was “to convert people’s thinking from 2D to 3D. It took more time than we thought it would. I came from a paper world and now I am managing a digital program.”61 Converting people’s thinking required what another manager called an “unending communication” coupled with training and retraining. Under the 777 program, Ostrowski recalled, “engineers had to learn to interact. Some couldn’t, and they left. The young ones caught on” and stayed.62

Learning to work together was a challenge to managers, too. Some managers were reluctant to embrace Condit's open management style, fearing a decline in their authority. Others were reluctant to share their mistakes with their superiors, fearing reprisals. Some other managers, realizing that the new approach would end many managerial jobs, resisted change when they could, and did not pursue it wholeheartedly when they could not. Even top executives were sometimes uncomfortable with Boeing’s open management style, believing that sharing information with employees was likely to help Boeing’s competitors obtain confidential 777 data.63

Teamwork was another problem area. Working under pressure, some team members did not function well within teams and had to be moved. Others took advantage of their newborn freedom to offer suggestions, but were disillusioned and frustrated when management either ignored these suggestions, or did not act upon them. Managers experienced different team-related problems. In several cases, managers kept on meeting with their team members repeatedly until they arrived at a solution desired by their bosses. They were unwilling to challenge senior executives, nor did they trust Boeing’s new approach to teaming. In other cases, managers distrusted the new digital technology. One engineering manager instructed his team members to draft paper drawings alongside Catia’s digital designs. When Catia experienced a problem, he followed the drawing, ignoring the computerized design, and causing unnecessary and costly delays in his team’s part of the project.64

Extending the 777 Revolution

Boeing’s learning pains played a key role in the company’s decision not to implement the 777 program companywide. Boeing officials recognized the importance of team work and Catia in reducing change, error, and rework, but they also realized that teaming required frequent training, continuous reinforcement, and ongoing monitoring, and that the use of Catia was still too expensive, though its cost was going down (in 1997, Catia’s “penalty” was down to 10 percent). Three of Boeing’s derivative programs, the 737 Next Generation, the 757-300, and the 767400, had the option of implementing the 777’s program innovations, and only one, the 737, did so, adopting a modified version of the 777’s cross-functional teams.65

Yet the 777’s culture was spreading in other ways. Senior executives took broader roles as the 777 entered service, and their impact was felt through the company. Larry Olson, director of information systems for the 747/767/777 division, was a former 777 manager who believed that Boeing 777 employees “won’t tolerate going back to the old ways.” He expected to fill new positions on Boeing’s next program—the 747X—with former 777 employees in their forties.66 Philip Condit, Boeing CEO, implemented several of his own 777’s innovations, intensifying the use of meeting among Boeing’s managers, and promoting the free flow of ideas throughout the company. Under Condit's leadership, all mid-level managers assigned to Boeing Commercial Airplane Group, about sixty people, met once a week to discuss costs, revenues, and production schedules, product by product. By the end of the meeting—which sometimes ran into the evening—each manager had to draft a detailed plan of action dealing with problems in his/her department.67 Under Condit's leadership, more important, Boeing developed a new “vision” that grew out of the 777 project. Articulating the company’s vision for the next two decades (1996–2016), Condit singled out “Customer satisfaction,” “Team leadership,” and “A participatory workplace,” as Boeing’s core corporate values.68


Looking back at the 777 program twelve years after the launch and seven years after first delivery, it is now (2002) clear that Boeing produced the most successful commercial jetliner of its kind. Airbus launched the A330 and A340 in 1987, Notes

Exhibit VII. Total number of MD11,A330,A340, and 777 airplanes delivered during 1995–2001








McDonnell Douglas/








Boeing MD11 Airbus A330








Airbus A340








Boeing 777








Source: For Airbus, Mark Luginbill Airbus Communication Director, February 1, 2000, and March 11, 2002. For

Boeing, The Boeing Company Annual Report, 1997, p. 35, 1998, p. 35; “Commerical Airplanes: Order and Delivery,

Summary,” http//www.boeing.com/commercial/order/index.html. Retreived from Web, February 2, 2000, and March 9, 2002.

and McDonnell Douglas launched a new 300-seat wide body jet in the mid 1980s, the three-engine MD11. Coming late to market, the Boeing 777 soon outsold both models. The 777 had entered service in 1995, and within a year Boeing delivered more than twice as many 777s as the number of MD11s delivered by McDonnell Douglas. In 1997, 1998, 1999, and 2001, Boeing delivered a larger number of 777s than the combined number of A330s and A340s delivered by Airbus (Exhibit VII). A survey of nearly 6,000 European airline passengers who had flown both the 777 and the A330/A340 found that the 777 was preferred by more than three out of four passengers.69 In the end, a key element in the 777’s triumph was its popularity with the traveling public.


  1. Rodgers, Eugene. Flying High: The Story of Boeing (New York: Atlantic Monthly Press, 1996), 415–416; Michael Dornheim, “777 Twinjet Will Grow to Replace 747-200,” Aviation Week and Space Technology (June 3, 1991): 43. 2. “Commercial Airplanes: Order and Delivery, Summary,” http/www. boeing.com/commercial/orders/index.html. Retrieved from Web, February 2, 2000.
  2. Donlon, P. “Boeing’s Big Bet” (an interview with CEO Frank Shrontz), Chief Executive (November/December 1994): 42; Dertouzos, Michael, Richard Lester, and Robert Solow, Made in America: Regaining the Productive Edge (New York: Harper Perennial, 1990), 203.
  3. John Newhouse, The Sporty Game (New York: Alfred Knopf, 1982), 21, but see also 10–20.
  4. Mowery, David C., and Nathan Rosenberg. “The Commercial AircraftIndustry,” in Richard R. Nelson, ed., Government and Technological Progress:

A Cross Industry Analysis (New York: Pergamon Press, 1982), 116; Dertouzos et al., Made in America, 200.

  1. Dertouzos et al., Made in America,
  2. Newhouse, Sporty Game, Mowery and Rosenberg, “The Commercial Aircraft Industry,” 124–125.
  3. Mowery and Rosenberg, “The Commercial Aircraft Industry,” 102–103,126–128.
  4. Rae, John B. Climb to Greatness: The American Aircraft Industry,

1920–1960 (Cambridge, Mass.: MIT Press, 1968), 206–207; Rodgers, Flying High, 197–198.

  1. Spadaro, Frank. “A Transatlantic Perspective,” Design Quarterly (Winter 1992): 23.
  2. Rodgers, Flying High, 279; Newhouse, Sporty Game, 7.
  3. Hochmuth, M. S. “Aerospace,” in Raymond Vernon, ed., Big Business and the State (Cambridge: Harvard University Press, 1974), 149.
  4. Boeing Commercial Airplane Group, Announced Orders and Deliveries as of 12/31/97, Section A 1.
  5. The Boeing Company 1998 Annual Report,
  6. Formed in 1970 by several European aerospacc firms, the Airbus Consortiumhad received generous assistance from the French, British, German, and Spanish governments for a period of over two decades. In 1992, Airbus had signed an agreement with Boeing that limited the amount of government funds each aircraft manufacturer could receive, and in 1995, at long last, Airbus had become profitable. “Airbus 25 Years Old,” Le Figaro, October 1997 (reprinted in English by Airbus Industrie); Rodgers, Flying High, 12; Business Week (30 December 1996): 40.
  7. Charles Goldsmith, “Re-engineering, After Trailing Boeing for Years, AirbusAims for 50% of the Market,” Wall Street Journal (March 16, 1998).
  8. “Hubris at Airbus, Boeing Rebuild,” Economist, 28 (November 1998).
  9. The Boeing Company 1997 Annual Report, 19; The Boeing Company 1998 Annual Report,
  10. Donlon, “Boeing’s Big Bet,” 40; John Mintz, “Betting It All on 777”Washington Post (March 26, 1995); James Woolsey, “777: A Program of New Concepts,” Air Transport World (April 1991): 62; Jeremy Main, “Corporate Performance: Betting on the 21st Century Jet,” Fortune (April 20, 1992), 104; James Woolsey, “Crossing New Transport Frontiers,” Air Transport World (March 1991): 21; James Woolsey, “777: Boeing’s New Large Twinjet,” Air Transport World (April 1994): 23; Michael Dornheim, “Computerized Design System Allows Boeing to Skip Building 777 Mockup,” Aviation Week and Space Technology (June 3, 1991): 51; Richard O’Lone, “Final Assembly of 777 Nears,” Aviation Week and Space Technology (October 2, 1992): 48.
  11. Rodgers, Flying High,
  12. Air Transport World (March 1991): 20; Fortune (April 20, 1992), 102–103.
  13. Rodgers, Flying High, 416, 420–424.
  14. Richard O’Lone and James McKenna, “Quality Assurance Role was Factorin United’s 777 Launch Order,” Aviation Week and Space Technology (October 29, 1990): 28–29; Air Transport World (March 1991): 20.
  15. Quoted in the Washington Post (March 25, 1995).
  16. Quoted in Bill Swectman, “As Smooth as Silk: 777 Customers Applaud theAircraft’s First 12 Months in Service,” Air Transport World (August 1996): 71, but see also Air Transport World (April 1994): 24, 27.
  17. Quoted in Fortune (April 20, 1992), 112.
  18. Rodgers, Flying High, 426; Design Quarterly (Winter 1992): 22; Polly Lane, “Boeing Used 777 to Make Production Changes,” Seattle Times (May 7, 1995).
  19. Design Quarterly (Winter 1992): 22; The Boeing Company, Backgrounder: Pace Setting Design Value-Added Features Boost Boeing 777 Family (May 15, 1998).
  20. Boeing, Backgrounder, (May 15, 1998); Sabbagh, 21st Century Jet, 49.
  21. Karl Sabbagh, 21st Century Jet: The Making and Marketing of the Boeing 777 (New York: Scribner, 1996), 264, 266.
  22. Sabbagh, 21st Century Jet, 131–132
  23. Air Transport World (April 1994): 23; Fortune (April 20, 1992), 116.
  24. Washington Post (March 26, 1995); Boeing Commercial Airplane Group, 777 Announced Order and Delivery Summary...As of 9/30/99.
  25. Rodgers, Flying High, 420–426; Air Transport World (April 1994): 27, 31; “Leading Families of Passenger Jet Airplanes,” Boeing Commercial Airplane Group, 1998.
  26. Sabbagh, 21st Century Jet,
  27. Quoted in Sabbagh, 21st Century Jet,
  28. Aviation Week and Space Technology (June 3, 1991): 50, (October 12, 1992),
  29. 49; Sabbagh 21st Century Jet, p. 62.
  30. George Taninecz, “Blue Sky Meets Blue Sky,” Industry Week (December 18, 1995); 49–52; Paul Proctor, “Boeing Rolls Out 777 to Tentative Market,” Aviation Week and Space Technology (October 12, 1992): 49.
  31. Aviation Week and Space Technology (April 11, 1994): 37; Aviation Week and Space Technology (June 3, 1991): 35.
  32. Quoted in Sabbagh, 21st Century Jet, 68–69.
  33. This was the phrase used by Boeing project managers working on the 777. See Sabbagh, 21st Century Jet, 4.
  34. Fortune (April 20, 1992), 116; Sabbagh, 2lst Century Jet, 69–73; Wolf L. Glende, “The Boeing 777: A Look Back,” The Boeing Company, 1997, 4.
  35. Quoted in Air Transport World (August 1996): 78.
  36. Richard O’Lone, “777 Revolutionizes Boeing Aircraft DevelopmentProcess,” Aviation Week and Space Technology (June 3, 1992): 34.
  37. Casey Corr. “Boeing’s Future on the Line: Company’s Betting its FortunesNot Just on a New Jet, But on a New Way of Making Jets,” Seattle Times (August 29, 1993); Polly Lane, “Boeing Used 777 to Make Production Changes, Meet Desires of Its Customers,” Seattle Times (May 7, 1995); Aviation Week and Space Technology (June 3, 1991): 34.
  38. Seattle Times (August 29, 1993).
  39. Seattle Times (May 7, 1995, and August 29, 1993).
  40. Quoted in Rodgers, Flying High, 419–420.
  41. Sabbagh, 21st Century Jet,
  42. Sabbagh, 21st Century Jet,
  43. Dori Jones Young, “When the Going Gets Tough, Boeing Gets Touchy-Feely,Business Week (January 17, 1994): 65–67; Fortune (April 20, 1992), 117.
  44. Reprinted by The Boeing Company, Executive Communications, 1992.
  45. Boeing, Backgrounder (May 15, 1998).
  46. Industry Week (December 18, 1995): 50–51; Air Transport World (April 1994).
  47. Aviation Week and Space Technology (April 11, 1994): 37.
  48. Boeing, Backgrounder, “Computing & Design/Build Process Help Develop the 777.” Undated.
  49. Seattle Times (August 29, 1993).
  50. Seattle Times (May 7, 1995).
  51. Seattle Times (August 29, 1993).
  52. Glende, “The Boeing 777: A Look Back,” 1997, 10; Air Transport World (August 1996): 78.
  53. Air Transport World (April 1994): 23.
  54. Washington Post (March 26, 1995).
  55. Seattle Times (May 7, 1995); Rodgers, Flying High,
  56. Seattle Times (May 7, 1995); Rodgers, Flying High, 441–442.
  57. Glende, “The Boeing 777: A Look Back,” 1997, 10.
  58. Air Transport World (August 1996), 78.
  59. “A New Kind of Boeing,” Economist (January 22, 2000), 63.
  60. “Vision 2016,” The Boeing Company 1997.
  61. “Study: Passengers Voice Overwhelming Preference for Boeing 777,http/www.boeing.com/news/releases/1999. Retrieved from Web 11/23/99.

The Enterprise

Resource Planning 1 Project

“What have I gotten myself into?” remarked Jerry as he looked at himself in the mirror. “I must have been crazy to volunteer for this project. Although I consider myself a good project manager, having been in project management for more than 25 years, I know very little about how to recover a failing project. This may be more than I can handle. I certainly do not want to end up in the hospital like the two previous project managers!”


Most of Jerry’s project management career had been working for Mannix Corporation, a company that provides IT business solutions to companies around the world. In the past ten years, Mannix had developed expertise in enterprise resource planning (ERP) systems. ERP is an enterprisewide information system designed to coordinate all resources, information, and activities needed to complete business solutions. ERP generally focuses on a single database that is common to all departments. Information can be stored and retrieved on a real-time basis. However, some companies maintain an ERP in modules. The modular

1©2010 by Harold Kerzner. Reproduced by permission. All rights reserved.


software design means that a business can select the modules as needed, mix and match modules from different vendors, and add new modules of their own to improve their business performance.

More than a year ago, Mannix Corporation won a contract from the Prylon Company to create and install an ERP system using a single database. Prylon did not have a complete ERP system but had various modules that were purchased from a variety of vendors. Prylon tried desperately on their own to coordinate all modules into one database, but failed. Prylon then hired Mannix Corporation to try to unite all of the modules into one package. And if that did not work, then Mannix Corporation would have the right to remove the modular design and start over with a single database design concept.

The first project manager failed terribly. Several of Prylon’s business systems were shut down temporarily while the project manager was trying to coordinate the modules. Functional managers were furious that they did not have access to the business systems they needed and the daily operations of Prylon’s business suffered. Prylon asked Mannix Corporation to remove the first project manager and replace him.

The second project manager that was assigned was like “a bull in a china shop.” He did not understand Prylon’s business, refused to learn and understand Prylon’s business needs and culture, and made unrealistic demands upon Prylon for additional support. The second project manager alienated senior management at Prylon to the point where they were willing to cancel the contract with Mannix Corporation and go out for competitive bidding again.


Executives from Mannix Corporation met with senior management at Prylon Corporation and asked for one more chance. The original contract schedule was eighteen months. It was now one year into the project and it appeared that at least one more year would be needed to finish the job. Prylon did not want to let Mannix continue on with the contract. But going out for competitive bidding again and having another contractor come back with an eighteen-month schedule would mean that the ERP system would not be operational for at least another two years. If Mannix Corporation could succeed, the ERP system could be operational in less than a year. Mannix Corporation was given a third chance but was told that a new project manager must be assigned.

Immediately after receiving the news that the project would continue, Jerry was asked to attend a meeting with senior management. One of the executives spoke up:

Jerry, I guess you know about the problems we are having with Prylon Corporation. They have been one of our best clients over the years and we do not want to lose their business.

Meeting the Team

You are one of our best project managers and I am asking you to volunteer to become the third project manager and finish the project successfully. The choice is yours.

The first two project managers never looked at the early warning signs indicating that the project was getting into trouble. Projects do not go from “green” to “red” overnight. The early warning signs were either misunderstood or overlooked. In either event, we have a displeased client. We need a project manager that can reverse a possibly failing project. I know you have never been asked before today to take over a distressed project.

Jerry thought about it for a couple of minutes and then agreed to become the next project manager. One of the executives then stated:

When a project gets way off track, the cost of recovery is huge and vast resources are often required for corrections. We cannot give you any more resources and the contract is firm-fixed-price effort. We will have to absorb the cost overruns.

I expect that some of the requirements will have to change during recovery. The ultimate goal of a recovery project is not to finish on time, but to finish with reasonable value and benefits for Prylon Corporation. The longer you wait to make the necessary repairs on the contract, the more costly the repairs will be.

As I see it, your biggest challenge will be the team. You cannot recover a distressed project in isolation. You need the team, and their morale is quite low at the moment. The team has been through two project managers already. Not all project managers have the ability to recover a failing project. But I think you can handle it.


Jerry understood that his first concern had to be the morale of his team. He knew many of the team members personally through socialization and having worked with them on previous projects. At the meeting, the team stated that they felt that they were on a death spiral. The previous project managers had created unnecessary additional work causing the team to work excessive hours on overtime. This placed increased stress and pressure upon the team. Several team members were replaced, but at inopportune times. A consultant was hired to support the team, and they felt that it made matters worse.

It was pretty obvious now what Jerry had inherited:

  • A burned-out team
  • An emotionally drained team
  • A team with poor morale
  • An exodus of the talented team members that may be in high demand elsewhere
  • A team with a lack of faith in the recovery process
  • Furious customers
  • Nervous management
  • Invisible sponsorship
  • Either invisible or highly active stakeholders

Jerry told the team that there were six life-cycle phases that must be accomplished to recover the distressed project. Jerry drew Exhibit I on the board and said that this would be his approach.

He also told the team that all overtime was canceled and that they were not to work on this project for a few days until Jerry reviewed the project and all of the facts. He said that they should reestablish their work-life balance and that this project was not the end of the world. He also said that he would reestablish an incentive program aligned with the successful completion of the project. Jerry knew there was a risk in asking them not to work on the project for a few days because the team members may then find a home on another project. But he felt comfortable about the first meeting with the team and believed that they would help him recover the project.


Jerry collected all of the files, reports, memos, and letters that were part of the project. He reviewed the history of the project and had meetings with those senior managers at Mannix that had information on Prylon Corporation. He reviewed the business case for the project, the expected benefits, the assumptions, and the project’s objectives.

He also had to evaluate the enterprise environmental factors to see if they were still valid. To do this, he would need to talk to people at Prylon Corporation. This would be essential. They would have to get to know him and trust him, and he would have to understand their needs and sensitivities.

The meeting with Prylon personnel went well. Prylon still wanted the entire ERP system as promised and was willing to accept the fact that the project will probably be six months late. However, Prylon still wanted to see the recover plan and what trade-offs, if any, needed to be made before agreeing to a continuation of the project.

[1] The flaperon and aileron were movable hinged sections of the trailing edge that helped the plane roll in flight. The flaperon was used at high speed, the aileron at low speed.

[2] The spoilers were the flat surfaces that lay on top of the trailing edge and extended during landing to slow down the plane.

[3] The fairing were the smooth parts attached to the outline of the wing’s trailing edge. They helped reduce drag.

Source: Karl Sabbagh, 21st Century Jet: The Making and Marketing of the Boeing 777 (New York: Scribner, 1996), p. 73.

Exhibit 1 recovery Life-cycle phase

Exhibit 1 recovery Life-cycle phase

Audit Phase


Having completed the understanding phase, it was now time to reconvene the team and begin the audit phase. First, Jerry informed the team of his meeting with Prylon and stated that:

  • The project was still considered to be of value to Prylon.
  • The project is still aligned to Prylon’s strategy.
  • Mannix Corporation is still committed to completing the project successfully for Prylon.
  • All of the stakeholders are still committed but want to see the final recovery plan.
  • Both Prylon and Mannix are motivated toward the rescue of this project.

The next item on Jerry’s agenda during the audit phase was to improve morale. Jerry had already asked the team to stop working on the project for a few days and rest up. The next step was to make the team aware of Jerry’s desire to listen to the team’s concerns by allowing the team to vent their issues. First, Jerry asked the team to look at the good things that happened on the project. The intent was to build morale.

Jerry then asked three questions:

  • Was the original plan overly optimistic?
  • Were there political problems that led to active or passive resistance by the team?
  • Were the work hours and work loads demoralizing?

The answers came quickly and to the point: The plan was overly optimistic; the requirements package was incomplete, resulting in numerous changes; and the previous two project managers assumed that the client was always right and agreed to all of the changes, thus resulting in increased workloads. The team felt that many of the changes were not necessary. To make matters worse, political infighting at Prylon impacted the project team. Both senior and middle managers at Prylon were interfacing directly with the Mannix project team members and asking them to do things that were not part of the original statement of work.

Jerry told the team that he would personally insulate them from interference from Prylon. From this point forth, any and all interfacing, questions, requests, or scope changes by Prylon personnel had to go through Jerry. The team seemed quite pleased with this change of events.

The next step in the audit phase would be most important. The team had to critically assess performance to date. As part of the audit, the team performed a root-cause analysis to identify the surface and hidden failure points.

Exhibit II. Trade-off categories

Exhibit II Trade-off categories

Once the failure points were identified, the team had to determine what could be done within the original time frame established by the contract and what could be done if the project were allowed to slip by six months. The team listed all of the critical deliverables and beside each one indicated what was “a must have,” “nice to have,” “can wait,” and “not needed.” The information was then drawn on the board. (See Exhibit II.) The team was told simply to list the issues on Exhibit II but not to analyze them yet.


With all of the issues now listed, Jerry asked the team to see where trade-offs could be made. Jerry wrote the following questions on the board beside Exhibit II:

  • Where are the trade-offs?
  • What are the expected casualties?
  • What can and cannot be done?
  • What must be fixed first?
  • Can we stop the bleeding?
  • Have the priorities of the competing constraints changed?
  • Have the features changed?
  • What are the risks?

Restart Phase

Jerry and the team then reviewed all of the opportunities for trade-offs and came up with a recommended “game plan” to be presented to senior management at Prylon.


The team came up with a recovery plan, including various options. Now, Jerry had to present the recovery plan to Prylon. Although it was common practice to ask some of the team members to accompany the project manager, Jerry decided to do it alone, in keeping with his promise of insulating the team from management at Prylon. Jerry knew there may be questions he could not answer but believed this to be the best approach.

Jerry started his presentation with an explanation of why he was there alone and that he would now be the only go-between from Prylon and Mannix. He explained his reason for doing this and that this was the only way he could have confidence in the execution of the project according to the proposed new schedule.

Jerry presented the team’s recommended recovery plan and the various options based upon what would be most important to Prylon right now, for example, time, cost value, and scope. Jerry appeared quite honest in his beliefs for recovery and continuously asserted that he was not giving them any unrealistic expectations. The project would be no more than six months late and he would do everything possible to accelerate the schedule. Jerry also asserted that he needed effective governance from Prylon to make this work, and he was now asking for their buy-in for the recovery plan.

Jerry had expected Prylon to ask for a few days for them to discuss his recovery plan, but much to his surprise, they took an immediate vote with Jerry present in the board room and gave him the authorization to proceed. They were a little unhappy that he was severing the interfacing between Prylon and the Mannix team and that everything had to go through Jerry, but they understood his reasons for doing this and accepted his approach.


Returning to Mannix Corporation, Jerry called a meeting of the team to discuss the good news and the small changes that Prylon made to the recovery plan. Jerry knew that there were three options to restart a failing project:

  • Full anesthetic: Bring all work to a standstill until a recovery plan is finalized.
  • Partial anesthetic: Bring some work to a standstill until scope is stabilized.
  • Scope modification: Continue work but with modifications as necessary.

Prylon’s rapid approval of the team’s recovery plan made the third option a reality. Jerry commended the team for doing a good job. When projects get into trouble, it is customary to bring new team members on board with new ideas. However, Jerry felt reasonably comfortable with the assigned team members.


Execution was now underway. Jerry prepared a memo and sent it out to all of the team members. The memo stated Jerry’s expectations for recovery and included the following:

  • We must learn from past mistakes; making the same mistake twice is unacceptable.
  • We must stabilize scope.
  • We must rigidly enforce the scope change control process.
  • It may be necessary to perform critical health checks.
  • Effective communication is essential.
  • We must maintain positive morale.
  • We must adopt proactive stakeholder management and I will be responsible for this.
  • Do not rely upon the company’s project management methodology system to save us; the team is responsible for the recovery, not the methodology.
  • Do not allow unwanted stakeholder intervention, which increases pressure.
  • I will carefully manage stakeholder expectations.
  • I will try to insulate the team from politics.


  1. Why did Prylon give Mannix Corporation a third chance?
  2. Do projects go from green to red overnight? If they do, then what is themost likely cause?
  3. Should a firm-fixed-price contract have been awarded from the ERP effort?
  4. Is it reasonable to expect that requirements will change during recovery?


  1. What is the ultimate goal of a recovery project?
  2. Do stakeholders expect trade-offs during recovery?
  3. What generally happens to constraints such as time and cost during recovery?
  4. Why was morale low when Jerry first took over the project?
  5. What are the characteristics of a death spiral on a failing project?
  6. What was Jerry’s intent in canceling overtime and asking the team to stopworking on the project for a few days?
  7. What were the risks in Question 10?
  8. As identified in the case, what were the life-cycle phases for recovery, andwhat is accomplished in each phase?
  9. Suppose that during the audit phase Jerry discovered that one of the teammembers, and a close friend of his, was the cause of most of the issues. How should Jerry handle the situation?
  10. What should Jerry do during the negotiation phase if Prylon Corporationcomes up with its own recovery plan and the plan is unacceptable to Mannix?

The Prioritization 1 of Projects


The directorates of Engineering, Marketing, Manufacturing, and R&D all had projects that they were working on and each directorate established its own priorities for the projects. The problem was that the employees were working on multiple projects and had to deal with competing priorities.


Lynx Manufacturing was a low-cost producer of cables and wires. The industry itself was considered as a low-technology industry and some of its products had been manufactured the same way for decades. There were some projects to improve the manufacturing processes, but they were few and far between.

Each of the four directorates, namely Engineering, Marketing, Manufacturing, and R&D, had projects, but the projects were generally quite small and used resources from only its own directorate.

By the turn of the century, manufacturing technologies began to grow and Lynx had to prepare for the technology revolution that was about to impact its business. Each directorate began preparing lists of projects that it would need to work on, and some of the lists contained as many as 200 projects. These projects

1©2010 by Harold Kerzner. Reproduced by permission. All rights reserved.



were more complex than projects worked on previously and project team members from all directorates were assigned on either a full-time or part-time basis.

Each directorate chief officer would establish the priorities for the projects originating in his or her directorate even though the projects required resources from other directorates. This created significant staffing issues and numerous conflicts:

  • Each directorate would hoard its best project resources even though some projects outside of the directorate were deemed more important to the overall success of the company.
  • Each directorate would put out fires by using people that were assigned to projects outside of its directorate rather than using people that were working on internal projects.
  • Each directorate seemed to have little concern about any projects done in other directorates.
  • Project priorities within each directorate could change on a daily basis because of the personal whims of the chief of that directorate.
  • The only costs and schedules that were important were those related to projects that originated within the directorate.
  • Senior management at the corporate level refused to get involved in the resolution of conflicts between directorates.

The working relationships between the directorates deteriorated to the point where senior management reluctantly agreed to step in. The total number of projects that the four directorates wanted to complete over the next few years exceeded 350, most of which required a team with members coming from more than one division.


  1. Why is it necessary for senior management to step in rather than let thechiefs of the directorates handle the conflicts?
  2. What should the senior management team do to resolve the problem?
  3. Let’s assume that the decision was to create a list that included all of theprojects from the four directorates. How many of the projects on the list should have a priority number or priority code?
  4. Can the directorate chiefs assign the priority or must it be done with theinvolvement of senior management?
  5. How often should the list of prioritized projects be reviewed and who shouldbe in attendance at the review meetings?
  6. Suppose that some of the directorate chiefs refuse to assign resourcesaccording to the prioritized list and still remain focused on their own pet projects. How should this issue now be resolved?

Selling Executives on Project 1



The executives at Levon Corporation watched as their revenue stream diminished and refused to listen to their own employees that were arguing that project management implementation was necessary for growth. Finally, the executives agreed to listen to a presentation by a project management consultant.


Levon Corporation had been reasonably successful for almost twenty years as an electronics component manufacturer. The company was a hybrid between project-driven and non-project-driven businesses. A large portion of its business came from development of customized products for government agencies and private-sector companies around the world.

The customized or project-driven portion of the business was beginning to erode. Even though Levon’s reputation was good, the majority of these contracts were awarded through competitive bidding. Every customer’s request for proposal

1©2010 by Harold Kerzner. Reproduced by permission. All rights reserved.


GAP Analysis

asked for a section on the contractor’s project management capability. Levon had no real project management capability. Since most of the contracts were awarded on points rather than going to the lowest bidder, Levon was constantly downgraded in the evaluation of the proposals because of no project management capability.

The sales and marketing personnel continuously expressed their concerns to senior management, but the concerns fell upon deaf ears. Management was afraid that their support of project management could result in a shift in the balance of power in the company. Also, whatever executive ended up with control of the project management function could become more powerful than the other executives.


Reluctantly, the executives agreed to hire a project management consultant. The consultant was asked to identify the gaps between Levon and the rest of the industry and to show how project management could benefit the company. The consultant was also asked to identify the responsibilities of senior management once project management is implemented.

After a few weeks of research, the consultant was ready to make his presentation before the senior staff. The first slide that the consultant presented was Exhibit I, which showed that Levon’s revenue stream was not as good as they thought. Levon was certainly lagging the industry average and distance between Levon and the industry leader was getting larger.

Exhibit 1 Lvon's gap analysis

Exhibit 1 Levon's gap analysis


The consultant then showed Exhibit II. The consultant had developed a project management maturity factor based upon such elements as time, cost, meeting scope, ability to handle risks, providing quality products, and customer interfacing and reporting. Using the project management maturity factor, the consultant showed that Levon’s understanding and use of project management were lagging the industry trend.

The consultant then showed Exhibit III, which clearly illustrated that, unless Levon takes decisive action to improve its project management capability, the gap will certainly increase. The executives seemed to understand this but the consultant could still see their apprehension in supporting project management.

Exhibit II. Project management performance trend

Exhibit 2 Project management performance trend

Exhibit III. Increasing performance gap

Exhibit 3 Increasing performance gap


  1. Why did the executives refuse to listen to their own employees but werewilling to listen to a consultant?
  2. Was the consultant correct in beginning the presentation by showing the gapbetween Levon and the rest of the industry?
  3. Why did the executives still seem apprehensive even after the consultant’spresentation?
  4. What should the consultant say next to get the executives to understand andsupport project management?


The New CIO


Rose Industries was a manufacturer of electrical products for the home. A large portion of its business base was devoted to the design, development, and manufacturing of specialized electronic components for public- and private-sector clients.

Ralph Williams had been with Rose Industries for more than forty-five years, beginning in the mail room and working himself up to president and CEO of Rose Industries. He was now beginning his tenth year as president and CEO.

Rose Industries believed in inbreeding. All promotions were from within the ranks. Rose Industries often had trouble attracting talented people, especially people with MBA degrees, because their conservative policy dictated that all employees new to the company begin at the bottom of the company and work their way up. Every senior manager at Rose had been with the company for at least thirty years.

Rose Industries discouraged employees from taking outside seminars and courses. If you wanted to attend a conference or symposium, the policy was “take vacation and pay your own way.” There were several training programs available to the workforce, but they were all taught by internal personnel and covered only

1©2010 by Harold Kerzner. Reproduced by permission. All rights reserved.


Hiring the CIO

the skills needed to do each job more effectively or to become qualified for a promotion to the next pay grade. Each employee was allowed a maximum of seven days off a year to attend internal training programs.

The company did not have any tuition reimbursement policy. There were numerous colleges and universities in the surrounding area that provided a variety of evening programs leading to various certification as well as undergraduate and graduate degrees. But the employees had to pay all expenses out of pocket. In order to satisfy some of the needs of the employees at Rose Industries, many of the professional societies in the surrounding area would hold conferences, symposiums, and professional meetings on weekends rather than weekdays.


By 2003, the ultraconservative nature of Rose Industries began to affect growth. Rose was falling further behind its competitors and gross sales were declining rather than increasing. Although Rose Industries was considered a low-cost manufacturer, it was losing business to some higher priced competitors whose advertizing campaigns attacked Rose’s weak project management capability. For years, Rose could not see any value in using project management and seemed to discourage its personnel from becoming a PMP®. Project management was never identified as one of Rose’s strengths in its proposals during competitive bidding. Rose did use a few Implementation of Project Managements when managing projects but no formal project management methodology existed.

Rose’s information systems were somewhat outdated. When software was needed, especially for more sophisticated business requirements, Rose would look for off-the-shelf products even though the products were not 100 percent applicable to or satisfied all of Rose’s needs. Rose did maintain an Information Technology Department which would create software for smaller requirements, but without the use of any systems development methodology.


Ralph Williams, President and CEO of Rose Industries, understood quite well the seriousness of the situation. The company must become good at project management, improve its information system, and develop methodologies for both project management and information systems. Mr. Williams decided to break with tradition and hire a new CIO from outside the company.

After an extensive search and interviewing process, the company hired John Green, a twenty-year veteran with one of the largest IT consulting companies in


the world. There was no question about John Green’s credentials and what he could bring to Rose Industries. The real issue was if and when he would be able to change the culture to accept his new ideas. Rose Industries had had the same culture for decades and getting the seasoned veteran to accept change would be difficult. John was told about the challenges before he was hired and he felt that he could adequately handle the situation.


During the first two weeks on the job, John interviewed personnel from all levels of the organization to ascertain how difficult it would be to change the culture. The situation was worse than John was led to believe.

John knew from decades of experience in project management that there are four characteristics of an effective project management culture: communications, cooperation, teamwork, and trust. The interviews made it quite apparent that there was no project management within the company and senior management had been reluctant to initiate improvements. Communications were quite poor because of the lack of a good information system. Cooperation and teamwork occurred only if people felt that they could benefit personally. There was more mistrust than trust. The building blocks for effective project management simply were not there.

John originally thought that he could make the necessary changes within two years. Now, after the interviews, it looked like five years would be closer to the truth. If this five-year time frame were allowed to happen, the health of Rose Industries could significantly degrade during that time period.

John came up with a four-step approach for implementing change:

  • Step 1: Hire several PMP®s quickly.
  • Step 2: Create two project management offices (PMOs); one would function as an IT PMO and the other one would be a corporate or strategic


  • Step 3: The IT PMO would create an IT systems development methodology suitable for Rose Industries
  • Step 4: The corporate PMO would create an enterprise project management methodology for all of Rose’s projects except the project in IT. The PMO would also participate in the portfolio selection of projects, strategic planning for project management, and project risk management activities.

John believed that this approach could accelerate the maturity in project management and some good practices could be in place in about two years. All John needed now was buy-in from the executive staff for his plan.



At the next executive staff meeting John presented his plan. The responses were not what John had hoped for. The other executives in the room immediately attacked step 1, arguing that they had no intention of hiring additional people. John would have to get some of the existing labor pool personnel trained in project management and there would be limited funding available to do this.

When step 2 was addressed, the executives argued that creating two PMOs would be the same as adding layers of management on top of the existing organizational structure. They simply could not see the need or value in having PMOs and viewed them as a possible threat to their power and authority.

When step 3 was discussed, there were several questions as to why Rose Industries had to develop its own systems development methodology when there are several packages commercially available. Some executives seemed to have no idea what a systems development methodology was or why it was needed at all.

When step 4 was discussed, the executives became furious that John was recommending that someone other than the executive levels of management participate in the portfolio selection of projects, especially project managers that were not even on a management career path ladder. The portfolio selection of projects was obviously seen as a job done entirely by executives. Likewise, allowing anyone other than executives to be involved in strategic planning and risk management was as a serious threat to some executives who perceived that this could impact their power, authority, and bonuses.

John now saw quite clearly what he was up against and that all of the executive support that he was led to believe would be forthcoming would not happen. There was no way he could implement the necessary changes by himself, at least not in a reasonable time period.

Within two weeks after the meeting, John turned in his resignation. John believed that Rose Industries was doomed to failure and John did not want his reputation to be tarnished by working for a company that failed.


  1. Why was it so difficult for Rose Industries to implement project management prior to John Green coming on board?
  2. Can inbreeding be detrimental to project management maturity?
  3. Looking at Rose’s current level of project management maturity, which isnot much, how long might it take them to see some reasonable project management maturity assuming Green was not there?
  4. Is it possible for an executive, or for anyone else for that matter, to determine the true challenges of the job at hand during the hiring interviews?

What questions, if any, should be asked?


  1. How does one know during the job interview process if the promises madefor support will be kept?
  2. Was Green correct in his four components of a good project managementculture?
  3. Was Green too optimistic with his four-step approach?
  4. Why were the other executives threatened by his four-step approach?
  5. If Green had decided to remain with Rose Industries, how might he changehis four-step approach given the responses by the other executives?
  6. Was Green correct in resigning from the company?
  7. What is your prognosis on Rose’s chances to remain in business?

The Invisible Sponsor


Some executives prefer to micromanage projects whereas other executives are fearful of making a decision because, if they were to make the wrong decision, it could impact their career. In this case study, the president of the company assigned one of the vice presidents to act as the project sponsor on a project designed to build tooling for a client. The sponsor, however, was reluctant to make any decisions.


Moreland Company was well-respected as a tooling design-and-build company. Moreland was project-driven because all of its income came from projects. Moreland was also reasonably mature in project management.

When the previous VP for engineering retired, Moreland hired an executive from a manufacturing company to replace him. The new VP for engineering, Al

1©2010 by Harold Kerzner. Reproduced by permission. All rights reserved.

THE Invisible Sponsor

Zink, had excellent engineering knowledge about tooling but had worked for companies that were not project-driven. Al had very little knowledge about project management and had never functioned as a project sponsor. Because of Al’s lack of experience as a sponsor, the president decided that Al should “get his feet wet” as quickly as possible and assigned him as the project sponsor on a mediumsized project. The project manager on this project was Fred Cutler. Fred was an engineer with more than twenty years of experience in tooling design and manufacturing. Fred reported directly to Al Zink administratively.


Fred understood the situation; he would have to train Al Zink on how to function as a project sponsor. This was a new experience for Fred because subordinates usually do not train senior personnel on how to do their job. Would Al Zink be receptive?

Fred explained the role of the sponsor and how there are certain project documents that require the signatures of both the project manager and the project sponsor. Everything seemed to be going well until Fred informed Al that the project sponsor is the person that the president eventually holds accountable for the success or failure of the project. Fred could tell that Al was quite upset over this statement.

Al realized that the failure of a project where he was the sponsor could damage his reputation and career. Al was now uncomfortable about having to act as a sponsor but knew that he might eventually be assigned as a sponsor on other projects. Al also knew that this project was somewhat of a high risk. If Al could function as an invisible sponsor, he could avoid making any critical decisions.

In the first meeting between Fred and Al where Al was the sponsor, Al asked Fred for a copy of the schedule for the project. Fred responded:

I’m working on the schedule right now. I cannot finish the schedule until you tell me whether you want me to lay out the schedule based upon best time, least cost, or least risk.

Al stated that he would think about it and get back to Fred as soon as possible.

During the middle of the next week, Fred and Al met in the company’s cafeteria. Al asked Fred again, “How is the schedule coming along?” and Fred responded as before:

I cannot finish the schedule until you tell me whether you want me to lay out the schedule based upon best time, least cost, or least risk.

Al was furious, turned around, and walked away from Fred. Fred was now getting nervous about how upset Al was and began worrying if Al might remove Questions 143

him as the project manager. But Fred decided to hold his ground and get Al to make a decision.

At the weekly sponsor meeting between Fred and Al, once again Al asked the same question, and once again Fred gave the same response as before. Al now became quite angry and yelled out:

Just give me a least time schedule.

Fred had gotten Al to make his first decision. Fred finalized his schedule and had it on Al’s desk two days later awaiting Al’s signature. Once again, Al procrastinated and refused to sign off on the schedule. Al believed that, if he delayed making the decision, Fred would take the initiative and begin working on the schedule without Al’s signature.

Fred kept sending e-mails to Al asking when he intended to sign off on the schedule or, if something was not correct, what changes needed to be made. As expected, Al did not respond. Fred then decided that he had to pressure Al one way or another into making timely decisions as the project sponsor. Fred then sent an e-mail to Al that stated:

I sent you the project schedule last week. If the schedule is not signed by this Friday, there could be an impact on the end date of the project. If I do not hear from you, one way or another, by this Friday, I will assume you approve the schedule and I can begin implementation.

The president’s e-mail address was also included in the CC location on the email. The next morning, Fred found the schedule on his desk, signed by Al Zink.


  1. Why do some executives refuse to function as project sponsors?
  2. Can an executive be “forced” to function as a sponsor?
  3. Is it right for the sponsor to be the ultimate person responsible for the success or failure of the project?
  4. Were Al Zink’s actions that of someone trying to be an invisible sponsor?
  5. Did Fred Cutler act appropriately in trying to get Al Zink to act as a sponsor?
  6. What is your best guess as to what happened to the working relationship between Al Zink and Fred Cutler?

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