In the early days of project management, there existed a common belief that project management had to be accompanied by organizational restructuring. Project management practitioners argued that some organizational structures, such as a matrix structure, were more conducive to good project management, while others were not quite effective. Every organizational structure comes with both advantages and disadvantages.
Today, we question whether organizational restructuring is necessary. Is it possible that project management can be implemented effectively in any organizational structure if we have a cooperative culture? Restructuring is often accompanied by a shift in authority and the balance of power. Can effective project management occur at the same time that the organization undergoes restructuring?
Quasar Communications, Inc.
Quasar Communications, Inc. (QCI), is a thirty-year-old, $350 million division of Communication Systems International, the world’s largest communications company. QCI employs about 340 people of which more than 200 are engineers. Ever since the company was founded thirty years ago, engineers have held every major position within the company, including president and vice president. The vice president for accounting and finance, for example, has an electrical engineering degree from Purdue and a master’s degree in business administration from Harvard.
QCI, up until 1996, was a traditional organization where everything flowed up and down. In 1996, QCI hired a major consulting company to come in and train all of their personnel in project management. Because of the reluctance of the line managers to accept formalized project management, QCI adopted an informal, fragmented project management structure where the project managers had lots of responsibility but very little authority. The line managers were still running the show.
In 1999, QCI had grown to a point where the majority of their business base revolved around twelve large customers and thirty to forty small customers. The time had come to create a separate line organization for project managers, where each individual could be shown a career path in the company and the company could benefit by creating a body of planners and managers dedicated to the completion of a project. The project management group was headed up by a vice president and included the following full-time personnel:
The nine customer project managers were expected to handle two to three projects at one time if necessary. Because the customer requests usually did not come in at the same time, it was anticipated that each project manager would handle only one project at a time. The R&D and capital equipment project managers were expected to handle several projects at once.
In addition to the above personnel, the company also maintained a staff of four product managers who controlled the profitable off-the-shelf product lines. The product managers reported to the vice president of marketing and sales.
In October 1999, the vice president for project management decided to take a more active role in the problems that project managers were having and held counseling sessions for each project manager. The following major problem areas were discovered.
R&D PROJECT MANAGEMENT
Project manager: “My biggest problem is working with these diverse groups that aren’t sure what they want. My job is to develop new products that can be introduced into the marketplace. I have to work with engineering, marketing, product management, manufacturing, quality assurance, finance, and accounting. Everyone wants a detailed schedule and product cost breakdown. How can I do that when we aren’t even sure what the end-item will look like or what materials are needed? Last month I prepared a detailed schedule for the development of a new product, assuming that everything would go according to the plan. I worked with the R&D engineering group to establish what we considered to be a realistic milestone. Marketing pushed the milestone to the left because they wanted the product to be introduced into the marketplace earlier. Manufacturing then pushed the milestone to the right, claiming that they would need more time to verify the engineering specifications. Finance and accounting then pushed the milestone to the left asserting that management wanted a quicker return on investment. Now, how can I make all of the groups happy?” Vice president: “Whom do you have the biggest problems with?”
Project manager: “That’s easy—marketing! Every week marketing gets a copy of the project status report and decides whether to cancel the project. Several Large Customer Project Management times marketing has canceled projects without even discussing it with me, and I’m supposed to be the project leader.”
Vice president: “Marketing is in the best position to cancel the project because they have the inside information on the profitability, risk, return on investment, and competitive environment.”
Project manager: “The situation that we’re in now makes it impossible for the project manager to be dedicated to a project where he does not have all of the information at hand. Perhaps we should either have the R&D project managers report to someone in marketing or have the marketing group provide additional information to the project managers.”
SMALL CUSTOMER PROJECT MANAGEMENT
Project manager: “I find it virtually impossible to be dedicated to and effectively manage three projects that have priorities that are not reasonably close. My low-priority customer always suffers. And even if I try to give all of my customers equal status, I do not know how to organize myself and have effective time management on several projects.”
Project manager: “Why is it that the big projects carry all of the weight and the smaller ones suffer?”
Project manager: “Several of my projects are so small that they stay in one functional department. When that happens, the line manager feels that he is the true project manager operating in a vertical environment. On one of my projects I found that a line manager had promised the customer that additional tests would be run. This additional testing was not priced out as part of the original statement of work. On another project the line manager made certain remarks about the technical requirements of the project. The customer assumed that the line managers’s remarks reflected company policy. Our line managers don’t realize that only the project manager can make commitments (on resources) to the customer as well as on company policy. I know this can happen on large projects as well, but it is more pronounced on small projects.”
LARGE CUSTOMER PROJECT MANAGEMENT
Project manager: “Those of us who manage the large projects are also marketing personnel, and occasionally, we are the ones who bring in the work. Yet, everyone appears to be our superior. Marketing always looks down on us, and when we bring in a large contract, marketing just looks down on us as if we’re riding their coattails or as if we were just lucky. The engineering group outranks us because all managers and executives are promoted from there. Those guys never live up to commitments. Last month I sent an inflammatory memo to a line manager because of his poor response to my requests. Now, I get no support at all from him. This doesn’t happen all of the time, but when it does, it’s frustrating.”
Project manager: “On large projects, how do we, the project managers, know when the project is in trouble? How do we decide when the project will fail? Some of our large projects are total disasters and should fail, but management comes to the rescue and pulls the best resources off of the good projects to cure the ailing projects. We then end up with six marginal projects and one partial catastrophe as opposed to six excellent projects and one failure. Why don’t we just let the bad projects fail?”
Vice president: “We have to keep up our image for our customers. In most other companies, performance is sacrificed in order to meet time and cost. Here at QCI, with our professional integrity at stake, our engineers are willing to sacrifice time and cost in order to meet specifications. Several of our customers come to us because of this. Last year we had a project where, at the scheduled project termination date, engineering was able to satisfy only 75 percent of the customer’s performance specifications. The project manager showed the results to the customer, and the customer decided to change his specification requirements to agree with the product that we designed. Our engineering people thought that this was a ‘slap in the face’ and refused to sign off the engineering drawings. The problem went all the way up to the president for resolution. The final result was that the customer would give us an additional few months if we would spend our own money to try to meet the original specification. It cost us a bundle, but we did it because our integrity and professional reputation were at stake.”
CAPITAL EQUIPMENT PROJECT MANAGEMENT
Project manager: “My biggest complaint is with this new priority scheduling computer package we’re supposedly considering to install. The way I understand it, the computer program will establish priorities for all of the projects in-house, based on the feasibility study, cost-benefit analysis, and return on investment. Somehow I feel as though my projects will always be the lowest priority, and I’ll never be able to get sufficient functional resources.”
Project manager: “Every time I lay out a reasonable schedule for one of our capital equipment projects, a problem occurs in the manufacturing area and the functional employees are always pulled off of my project to assist manufacturing.
And now I have to explain to everyone why I’m behind schedule. Why am I always the one to suffer?”
The vice president carefully weighed the remarks of his project managers. Now came the difficult part. What, if anything, could the vice president do to amend the situation given the current organizational environment?
By 1990, Jones and Shephard Accountants, Inc. (J&S) was ranked a midsized company in size by the American Association of Accountants. In order to compete with the larger firms, J&S formed an Information Services Division designed primarily for studies and analyses. By 1995, the Information Services Division (ISD) had fifteen employees.
In 1997, the ISD purchased three minicomputers. With this increased capacity, J&S expanded its services to help satisfy the needs of outside customers. By September 1998, the internal and external work loads had increased to a point where the ISD now employed over fifty people.
The director of the division was very disappointed in the way that activities were being handled. There was no single person assigned to push through a project, and outside customers did not know who to call to get answers regarding project status. The director found that most of his time was being spent on day-to-day activities such as conflict resolution instead of strategic planning and policy formulation.
The biggest problems facing the director were the two continuous internal projects (called Project X and Project Y, for simplicity) that required month-end data collation and reporting. The director felt that these two projects were important enough to require a full-time project manager on each effort.
In October 1998, corporate management announced that the ISD director would be reassigned on February 1, 1999, and that the announcement of his replacement would not be made until the middle of January. The same week that the announcement was made, two individuals were hired from outside the company to take charge of Project X and Project Y. Exhibit I shows the organizational structure of the ISD.
Within the next thirty days, rumors spread throughout the organization about who would become the new director. Most people felt that the position would be filled from within the division and that the most likely candidates would be the two new project managers. In addition, the associate director was due to retire in December, thus creating two openings.
On January 3, 1999, a confidential meeting was held between the ISD director and the systems manager.
ISD director: “Corporate has approved my request to promote you to division director. Unfortunately, your job will not be an easy one. You’re going to have to restructure the organization somehow so that our employees will not have as many conflicts as they are now faced with. My secretary is typing up a confidential memo for you explaining my observations on the problems within our division.
“Remember, your promotion should be held in the strictest confidence until the final announcement later this month. I’m telling you this now so that you can
Exhibit I. ISD organizational chart
begin planning the restructuring. My memo should help you.” (See Exhibit II for the memo.)
The systems manager read the memo and, after due consideration, decided that some form of matrix would be best. To help him structure the organization properly, an outside consultant was hired to help identify the potential problems with changing over to a matrix. Six problem areas were identified by the consultant:
Exhibit II. Confidential memo
From: ISD Director
To: Systems Manager Date: January 3, 1999
Congratulations on your promotion to division director. I sincerely hope that your tenure will be productive both personally and for corporate. I have prepared a short list of the major obstacles that you will have to consider when you take over the controls.
reassigned lower in the organization if the associate director’s position is abolished.
The systems manager evaluated the consultant’s comments and then prepared a list of questions to ask the consultant at their next meeting.
1 Fargo Foods
Fargo Foods is a $2 billion a year international food manufacturer with canning facilities in twenty-two countries. Fargo products include meats, poultry, fish, vegetables, vitamins, and cat and dog foods. Fargo Foods has enjoyed a 12.5 percent growth rate each of the past eight years primarily due to the low overhead rates in the foreign companies.
During the past five years, Fargo had spent a large portion of retained earnings on capital equipment projects in order to increase productivity without increasing labor. An average of three new production plants have been constructed in each of the last five years. In addition, almost every plant has undergone major modifications each year in order to increase productivity.
In 2000, the president of Fargo Foods implemented formal project management for all construction projects using a matrix. By 2004, it became obvious that the matrix was not operating effectively or efficiently. In December 2004, the author consulted for Fargo Foods by interviewing several of the key managers and a multitude of functional personnel. What follows are the several key questions and responses addressed to Fargo Foods:
manager may find himself a month or two behind scheduling before he even begins the project. The second problem is when the executive decides to arbitrarily change the end date milestone but keep the front end milestone fixed. On one of our projects it was necessary to complete the project in half the time. Our line managers worked like dogs to get the job done. On the next project, the same thing happened, and, once again, the line managers came to the rescue. Now, management feels that line managers cannot make good estimates and that they (the executives) can arbitrarily change the milestones on any project. I wish that they would realize what they’re doing to us. When we put forth all of our efforts on one project, then all of the other projects suffer. I don’t think our executives realize this.”
The design manager wants these people reporting to him if they are responsible for coordinating efforts in his shop. The design manager wants control of these people even if they have their name changed to assistant project managers. The project managers, on the other hand, want the project engineers to report to them with the argument that they must be dedicated to the project and must be willing to complete the effort within time, cost, and performance. Furthermore, the project managers argue that project engineers will be more likely to get the job done within the constraints if they are not under the pressure of being evaluated by the design manager. If I were the design manager, I would be a little reluctant to let someone from outside of my shop integrate activities that utilize the resources under my control. But I guess this gets back to interpersonal skills and the attitudes of the people. I do not want to see a brick wall set up between project management and design.”
Government Project Management
A major government agency is organized to monitor government subcontractors as shown in Exhibit I. Below are the vital characteristics of certain project office team members:
Government Project Management Exhibit I. Project team organizational structure
Located in New York, Falls Engineering is a $250-million chemical and materials operation employing 900 people. The plant has two distinct manufacturing product lines: industrial chemicals and computer materials. Both divisions are controlled by one plant manager, but direction, strategic planning, and priorities are established by corporate vice presidents in Chicago. Each division has its own corporate vice president, list of projects, list of priorities, and manpower control. The chemical division has been at this location for the past twenty years. The materials division is, you might say, the tenant in the landlord–tenant relationship, with the materials division manager reporting dotted to the plant manager and solid to the corporate vice president (see Exhibit I).
The chemical division employed 3,000 people in 1998. By 2003, there were only 600 employees. In 2004, the materials division was formed and located on the chemical division site with a landlord–tenant relationship. The materials division has grown from $50 million in 2000 to $120 million in 2004. Today, the materials division employs 350 people.
All projects originate in construction or engineering but usually are designed to support production. The engineering and construction departments have projects that span the entire organization directed by a project coordinator. The project coordinator is a line employee who is temporarily assigned to coordinate a project in his line organization in addition to performing his line responsibilities. Assignments are made by the division managers (who report to the plant manager)
Exhibit I. Falls Engineering organizational chart
and are based on technical expertise. The coordinators have monitoring authority only and are not noted for being good planners or negotiators. The coordinators report to their respective line managers.
Basically, a project can start in either division with the project coordinators. The coordinators draw up a large scope of work and submit it to the project engineering group, who arrange for design contractors, depending on the size of the project. Project engineering places it on their design schedule according to priority and produces prints and specifications, and receives quotes. A construction cost estimate is then produced following 60–75 percent design completion. The estimate and project papers are prepared, and the project is circulated through the plant and in Chicago for approval and authorization. Following authorization, the design is completed, and materials are ordered. Following design, the project is transferred to either of two plant construction groups for construction. The project coordinators than arrange for the work to be accomplished in their areas with minimum interference from manufacturing forces. In all cases, the coordinators act as project managers and must take the usual constraints of time, money, and performance into account.
Falls Engineering has 300 projects listed for completion between 2006 and 2008. In the last two years, less than 10 percent of the projects were completed within time, cost, and performance constraints. Line managers find it increasingly difficult to make resource commitments because crises always seem to develop, including a number of fires.
Profits are made in manufacturing, and everyone knows it. Whenever a manufacturing crisis occurs, line managers pull resources off the projects, and, of course, the projects suffer. Project coordinators are trying, but with very little success, to put some slack onto the schedules to allow for contingencies. The breakdown of the 300 plant projects is shown below:
Number of Projects
less than $50,000
Corporate realized the necessity for changing the organizational structure. A meeting was set up between the plant manager, plant executives, and corporate executives to resolve these problems once and for all. The plant manager decided to survey his employees concerning their feelings about the present organizational structure. Below are their comments:
After preparing alternatives and recommendations as plant manager, try to do some role playing by putting yourself in the shoes of the corporate executives. Would you, as a corporate executive, approve the recommendation? Where does profitability, sales, return on investment, and so on enter in your decision?
In 2004, White Manufacturing realized the necessity for project management in the manufacturing group. A three-man project management staff was formed. Although the staff was shown on the organizational chart as reporting to the manufacturing operations manager, they actually worked for the vice president and had sufficient authority to integrate work across all departments and divisions. As in the past, the vice president’s position was filled by the manufacturing operations manager. Manufacturing operations was directed by the former manufacturing manager who came from manufacturing engineering (see Exhibit I).
In 2007, the manufacturing manager created a matrix in the manufacturing department with the manufacturing engineers acting as departmental project managers. This benefited both the manufacturing manager and the group project managers since all information could be obtained from one source. Work was flowing very smoothly.
In January 2008, the manufacturing manager resigned his position effective March, and the manufacturing engineering manager began packing his bags ready to move up to the vacated position. In February, the vice president announced that the position would be filled from outside. He said also that there would be an organizational restructuring and that the three project managers would now be staff to the manufacturing manager. When the three project managers confronted the manufacturing operations manager, he said, “We’ve hired the new man in at a very high salary. In order to justify this salary, we have to give him more responsibility.”
Exhibit I. White Manufacturing organizational structure
In March 2008, the new manager took over and immediately made two declarations:
Martig Construction was a family-owned mechanical subcontractor business that had grown from $5 million in 2006 to $25 million in 2008. Although the gross profit had increased sharply, the profit as a percentage of sales declined drastically. The question was, “Why the decline?” The following observations were made:
“You’re really going to have your work cut out for you, Randy,” remarked Pat Coleman, vice president for operations. “It’s not going to be easy establishing a project management organizational structure on top of our traditional structure. We’re going to have to absorb the lumps and bruises and literally ‘force’ the system to work.”
Between 1988 and 1998, Mohawk National matured into one of Maine’s largest full-service banks, employing a full-time staff of some 1,200 employees. Of the 1,200 employees, approximately 700 were located in the main offices in downtown Augusta.
Mohawk matured along with other banks in the establishment of computerized information processing and decision-making. Mohawk leased the most upto-date computer equipment in order to satisfy customer demands. By 1994, almost all departments were utilizing the computer.
By 1995, the bureaucracy of the traditional management structure was creating severe administrative problems. Mohawk’s management had established many complex projects to be pursued, each one requiring the involvement of several departments. Each department manager was setting his or her own priorities for the work that had to be performed. The traditional organization was too weak structurally to handle problems that required integration across multiple departments. Work from department to department could not be tracked because there was no project manager who could act as focal point for the integration of work.
UNDERSTANDING THE CHANGEOVER PROBLEM
It was a difficult decision for Mohawk National to consider a new organizational structure, such as a matrix. Randy Gardner, director of personnel, commented on the decision:
Banks, in general, thrive on traditionalism and regimentation. When a person accepts a position in our bank, he or she understands the strict rules, policies, and procedures that have been established during the last 30 years.
We know that it’s not going to be easy. We’ve tried to anticipate the problems that we’re going to have. I’ve spent a great deal of time with our vice president of operations and two consultants trying to predict the actions of our employees.
The first major problem we see is with our department managers. In most traditional organizations, the biggest functional department emerges as the strongest. In a matrix organization, or almost any other project form for that matter, there is a shift in the balance of power. Some managers become more important in their new roles and others not so important. We think our department managers are good workers and that they will be able to adapt.
Our biggest concern is with the functional employees. Many of our functional people have been with us between twenty and thirty years. They’re seasoned veterans. You must know that they’re going to resist change. These people will fight us all the way. They won’t accept the new system until they see it work. That’ll be our biggest challenge: to convince the functional team members that the system will work.
Pat Coleman, the vice president for operations, commented on the problems that he would be facing with the new structure:
Under the new structure, all project managers will be reporting to me. To be truthful, I’m a little scared. This changeover is like a project in itself. As with any project, the beginning is the most important phase. If the project starts out on the right track, people might give it a chance. But if we have trouble, people will be quick to revert back to the old system. Our people hate change. We cannot wait one and a half to two years for people to get familiar with the new system. We have to hit them all at once and then go all out to convince them of the possibilities that can be achieved.
This presents a problem in that the first group of project managers must be highly capable individuals with the ability to motivate the functional team members. I’m still not sure whether we should promote from within or hire from the outside. Hiring from the outside may cause severe problems in that our employees like to work with people they know and trust. Outside people may not know our people. If they make a mistake and aggravate our people, the system will be doomed to failure.
Promoting from within is the only logical way to go, as long as we can find qualified personnel. I would prefer to take the qualified individuals and give them a lateral promotion to a project management position. These people would be on trial for about six months. If they perform well, they will be promoted and permanently assigned to project management. If they can’t perform or have trouble enduring the pressure, they’ll be returned to their former functional positions. I sure hope we don’t have any inter- or intramatrix power struggles.
Implementation of the new organizational form will require good communications channels. We must provide all of our people with complete and timely information. I plan on holding weekly meetings with all of the project and functional managers. Good communications channels must be established between all resource managers. These team meetings will give people a chance to see each other’s mistakes. They should be able to resolve their own problems and conflicts. I’ll be there if they need me. I do anticipate several conflicts because our functional managers are not going to be happy in the role of a support group for a project manager. That’s the balance of power problem I mentioned previously.
I have asked Randy Gardner to identify from within our ranks the four most likely individuals who would make good project managers and drive the projects to success. I expect Randy’s report to be quite positive. His report will be available next week.
Two weeks later, Randy Gardner presented his report to Pat Coleman and made the following observations:
I have interviewed the four most competent employees who would be suitable for project management. The following results were found:
Andrew Medina, department manager for cost accounting, stated that he would refuse a promotion to project management. He has been in cost accounting for twenty years and does not want to make a change into a new career field.
Larry Foster, special assistant to the vice president of commercial loans, stated that he enjoyed the people he was working with and was afraid that a new job in project management would cause him to lose his contacts with upper level management. Larry considers his present position more powerful than any project management position.
Chuck Folson, personal loan officer stated that in the fifteen years he’s been with Mohawk National, he has built up strong interpersonal ties with many members of the bank. He enjoys being an active member of the informal organization and does not believe in the applications of project management for our bank.
Jane Pauley, assistant credit manager, stated that she would like the position, but would need time to study up on project management. She feels a little unsure about herself. She’s worried about the cost of failure.
Now Pat Coleman had a problem. Should he look for other bank employees who might be suitable to staff the project management functions or should he look externally to other industries for consultants and experienced project managers?
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