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Episode 117: “Survival Hints in Project Business Management”

In this bonus Project Management Paradise Podcast episode, which is a recording taken from a virtual conference on PPM innovation, the project management guru Oliver F. Lehmann outlines survival hints in project business management.

Oliver has many stories to tell that he’s picked up over his 30 years of experience as a project management practitioner, writer, and trainer.

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Slides

If you are streaming the episode you may wish to scroll through the accompanying slides at the same time:

Transcript from Episode 117: “Survival Hints in Project Business Management” with Oliver F. Lehmann

Based in Munich, Germany, Oliver helps organizations and individuals identify and address weak spots to bring structure into their projects, to unify language and approaches, and achieve professional certification. Oliver believes in three driving forces for personal improvement in project management – formal learning, experience, and observations. Another focus of Oliver’s is the improvement of the customer contractor interface in the project business.

During his career, Oliver has worked with customers such as Airbus, DB Schenker, Honda, Microsoft, and many more. He has been a member, contributor, and a volunteer at the Project Management Institute since 1998. He served five years as president of the PMI Southern Germany Chapter until recently. Not content with managing that extensive portfolio, Oliver and a group of enthusiasts started the Project Business Foundation as a home association for professionals and organizations involved across corporate projects. Oliver has written extensively on project management and he is an author of “Situational Project Management: The Dynamics of Success and Failure” and “Project Business Management”.

Over to Oliver:

Let’s talk about survival hints in project business management. What I would like to talk about is the way to move from cross-functional to cross-corporate projects. The topic is project business, project business management, so we have to understand what this actually is. Then projects as business, what are the challenges that we are facing when you’re doing it this way. I’d like to talk with you then about the cooperative transformation that organizations go through. The last part of this presentation is survival hints. What can we do? What can you do if you’re in project business to make it more likely to survive this crisis that we are going through at the moment? It’s a tough crisis, a hard crisis, and very damaging for some of us, but some can take a benefit out of that depending on what your business is.

Let’s begin with the movement from cross-functional to cross-corporate projects. The original topic of this event was innovation in projects and I have some memories of that 25, 30 years ago when I was in project management in organizations and that would normally head up something like the R&D department there which made, obviously, research and development and it was practically all happening inside the protective walls of the organization. And inside the organization, there were even more protective walls, the R&D department, which was only accessible for people who were authorized to do that.

Today, if we look at how research and development is done, how innovation is done, we will find a major part of that has meanwhile broken through these protective walls of the R&D department and also of the organization. A lot it has handed out to external providers. In some industries, it’s a very interesting observation that some parts of the industry have followed this path and others have not so much. An example is pharmacy, which is at the moment, very important with the coronavirus crisis, of course. Traditional pharmaceutical development is still mostly done in this 20th century way. It’s mostly done internally. But as soon as you go to biochemistry, use of microbes, yeast, and bacteria to produce new products and other stuff, you find it handed out to external companies, to contractors. So, this is now far more project management business, so much more internal project management. Organizations have today to stay up front, to stay at the edge of development and if you look at the many things that we have, you can’t do it alone anymore.

So, there is indeed a trend towards more project business which is changing how our project teams are working. This is the traditional understanding of a project team. We have a cross-functional organizational structure, a project inside an organization. Here we have several divisions, departments, business units, and the team is made from people from these units. They are temporarily assigned to a project, often they have to do things at the same time, work for the functional department division, work on a project. And it’s one of the difficulties we have with internal projects. An internal project is not a simple thing, it is a difficult task. However now with cross-corporate projects, the tasks get even more complex because, on top of the cross-functional dimension, we have cross-corporate dimensions. Now we have customers, contractors, in my example, two of them and one of them are subcontractors. So, a contractor on the right is a prime contractor and teams come together from different organizations. Now some may bring more people in, some may bring best people in but the project is no more just about cross-functional activity, it is about cross-corporate activity now.

I wanted to understand this better and a bit more than 3 years ago I made a survey on that. I asked people “What is your observation on trends in the make or buy decision process? Is the trend going more going towards make or more going towards buy?” and I asked the second question “What is your expectation for the future? Where do you believe this is tending towards?” And if you look at the diagram, you see on the left-hand side is the number of people who said that the tendency goes towards making decisions. On the right-hand side, we see people who said “No, it’s not going towards buy decisions. And there is more on the right then on the left. They had an area between -3 and +3, and the average for the past is +1.3, for the future is +100. I can break this down for different regions of the world, small projects and large projects. However when I look it’s the same thing, there is not a single exception where people said: “No, it’s more towards making decisions, not so much towards buy”. If a make or buy decision is made in an organization and a decision option taken is make, this means it will become an internal project. If the decision is to buy the project partially or in full, the work results that are needed in other things, then probably, it will be a customer project, a customer-facing project, as a customer project for one or maybe more contractors and we see the tendency, it is immeasurable tendency.

I made another survey and I made it three times – 2015, 2018 and last year again and asked people “What type of projects are you currently managing or have you maybe just finished?” Some of the respondents are at the moment between two projects. So, “What was your last one?” The red bars said “My project is done under contract for an external-paying customer” and we say it is repetitively over 50% internal projects are rarer about 1/3 maybe more than that and some have different settings, so that’s the yellow bar here, not every project fits into this distinction customer project, internal project. But the majority do, over 90% obviously do. And of these, two, more than a half, maybe more than 50% is done as customer projects. The majority of project managers today is in customer projects, not in internal projects. So we put those two surveys together, we see more procurement is done by customers, more project managers are working for contractors, so project business is a growing field, a growing discipline and we have to do more for that.

By the way, that’s the reason why we founded the Project Business Foundation last year to help project managers help organizations in this field because the traditional project management associations are not really interested in this field. If you’re in the project business, there are some very specific challenges. By the way when I say “You have” maybe I should say “You had” because on top of that now, of course, we have a crisis, we have the coronavirus crisis, which is changing a lot and we have no idea what things will look like when we, hopefully, have an end of this crisis in the future, hopefully near future. So, this is still a bit history but for some organizations, it is still today’s reality.

One challenge here is that we have different lifespans or lifecycles depending on what work you prefer, how we make benefits, how we realize generally, benefits for the organization. This is the classical understanding of an internal project, you have a project, in the end it has some kind of delivery and with a delivery, the project is finished and benefits can be realized. This is what you normally find in literature, almost all books on project management assume this single delivery.

I think the majority of projects today have staged deliveries which means the delivery is not just the single one, there are several deliveries, one after the other and the project ends with the latest, the last delivery. Benefits realization and the project lifespan can overlap to some degree, but we still see the benefits realization lifespan, most of that is still in the future. Most benefits are still realized in the future.

So, if you look from a customer perspective, project business means to talk about an internal project, not internally performed but an internal project. They use the benefits, they use the deliverables that come out of that and we see, for them, most of that is in the future. In our customer projects as contractors, in most cases, it looks different, benefits realization for the customer is in the future, for the contractor, it is in the present. It begins with the first payment from the customer and it ends with the last payment. Maybe the contractor’s organization has some future benefits, it could be monetary benefits with something like a service contract, it also can be, of course, not monetary benefits like having a reference customer. But most of the monetary benefits, at least for the project, comes during the project itself.

There are some exceptions, here is an example for that, freebie project, you have a company that was a free customer project, at the end there will be a deliverable and from this deliverable, they get their payments back, they invest into their customer and later get the money back. I know several examples of freebie projects, I know them from the automotive industry, for instance. We are often a component supplier who is expected to develop the component for free and later get the money back when they sell this component to their customers. They are also seen in software in IG, there are some projects. But I think it’s rare in comparison to the very traditional customer project where your payments are made during the course of the project.

One thing that we often see in project business are conflicts. Not just conflicts inside organizations, but conflict at the interface between these organizations, at the contractual interface between these organizations. And it is another survey I did some time ago. I asked people “Which are the most frequent causes of conflicts between contract parties in projects?” Number one was very clear – conflict in business interests in the project among parties. Arrangement from 0 to 5 and this was 2.95, so it was a 60 percent answer here. And the diversity of cultures and incompatible egos are the next big things and also the other answers they turned up and some of them can become very, very nasty when they take a default of a party or a contractor going bankrupt is an awful situation, a customer going bankrupt, not able to pay the contractor is also a nasty situation. It’s for both of them. But the number one is conflicting business interests. I don’t think it was a surprise at all but it was interesting to see it.

Another important aspect when we talk about project business, it does not begin with a contract, it does not begin with a project charter, it does not begin with a PMBOK guide. It begins much, much earlier. From a buyer’s side, from a perspective of a future customer, on the left end is still not the customers, just the buyer, but it begins with the make-or-buy decision. When the buyer has been chosen, then the project business begins for them. For different sellers were asked to set an offer to the customer, make a proposal, a tender, whatever you like to call it, it begins with the decision “Yes. We will send an offer, the offer-no offer decision is the moment when the project business begins. In my example here, sellers 2 and 3 lose this competition for the business. So, for them, the project business is over with the contract. For seller 1, it goes on. The customer project on the side of seller 1 and then an internal project on the side of the buyer. A problem that this lifecycle is showing us, is giving us is what do parties focus on in these different phases.

Before we have the contract, a very common situation is a focus on competing between the organizations. There is a competition between the different sellers, each of them wants to have a business with a customer. Also on the customer side, there is some competitive behaviour. I want to get as much delivery, as much service, the best service, the maximum, maximum amount of deliverables for the least amount of money. And of course, the seller has the opposite intention. Also, there is a competition between the buyer and the sellers and it’s very much driven by competition and in some environments, like public services, it is even by law that there has to be a lot of competition here.

When the contract has been signed, things are changing completely here, now it’s no more about competition, now the companies have to cooperate, they have to work together to complete the project successfully. We will see later in an example of a project, where there was not enough collaboration, cooperation, and communication and that was the reason why the project failed at the interface between the buyers and the sellers.

And now we have these situations turning up overtime. That’s a project supply network similar to a supply chain in manufacturing but much less orderly. We see project supply networks evolving, we have a customer here and we have again, a contractor as one of them is a prime contractor or the first tier and the prime contractor has subcontractors. Prime contractors have very specific problems again, the problem is at one side to the top here, you are a contractor to the final customer, but at the same time, you are also a customer, customer of subcontractors. So, you are sitting here between these chairs and it can be a place which can be very profitable and very satisfying to sit there. What I see more often at the moment is, it is very difficult, it’s very risky and that’s not very profitable to sit there because you get price pressure from the customer trying to reduce the price, while at the same time subcontractors get more expensive and more expensive over time. And you are sitting in the middle and your margin is getting smaller and smaller.

Learn more about Project Business Management

Watch Oliver’s Webinar here.
Find out more about the Project Business Foundation here.

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