Cover Page i Building Customer-Based Project Organizations Page ii This page intentionally left blank. Page iii Building Customer-Based Project Organizations Jeffrey K. Pinto Pekka Rouhiainen Page iv Copyright © 2001 by Jeffrey K. Pinto and Pekka Rouhiainen. All rights reserved. Published by John Wiley & Sons, Inc. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850- 6011, fax (212) 850-6008, E-Mail: PERMREQ@WILEY.COM . This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. This title is also available in print as ISBN 0-471-38509-3 (cloth : alk. paper) For more information about Wiley products, visit our web site at www.Wiley.com v For our wives, Mary Beth and Liisa, with sincerest love and gratitude. vi This page intentionally left blank. vii PREFACE Businesspeople and readers of the popular press are bombarded with a host of new books proclaiming that project management’s time has come. Authors cite evidence from Fortune magazine (proclaiming project management the top career choice for the coming decade), company after company has adopted project management techniques, growth, professional project management organizations have proliferated in the past five years, and innumerable articles have appeared in both the popular and academic presses extolling the benefits of project management. For project managers and project-based organizations, it seems the good times have arrived. Right? Well, unfortunately, the answer is still unclear. There is no question that project management has received a great deal of attention in recent years. The number of firms using project management has risen dramatically, the number of consultants serving the sector has multiplied, and with them, so has the number of problems confronted by project management organizations. Problems? How could that be? With all the hype being generated, new “how to” books coming out every month, and so many organizations now speaking the language of project management, what kind of problems could there be? Let us briefly consider some of the evidence: Magazine and newspaper articles, as well as recent studies by a variety of consulting firms and academic researchers are suggesting some disturbing signs that the trend toward project management has not come without serious obstacles and counterevidence. viii Information technology projects continue to fail at astounding rates, approaching 65 percent to 70 percent. Firms that have recently adopted project management as their panacea are looking at long lists of overruns and schedule slippages in these ventures and are quietly, but seriously, rethinking their operating strategies. Surprisingly, the same thing seems to be happening within the industries that have long traditions in project management. For example, most of the deep-water, oil drilling units that were under construction at the end of the 1990s showed considerable delays and budget overruns. Researchers are increasingly decrying the lack of “competence” in project management by so many companies that have jumped on its bandwagon. In short, the promised land has not yet been reached. In fact, for some firms, Nirvana seems to be actually receding into the distance. Why are these problems occurring? Just how serious are they? Might they not be the expected side effects of any new technology that has been adopted too rapidly, without the proper training and supporting corporate culture? These are all good questions that are at the heart of the problems we are facing. If the technology is good, what then is the source of the problems? No one answer is possible. There are many sources of difficulties faced by project-based organizations. Misunderstanding of the techniques (what they will do and what they will not do), lack of resources and systematic training in project management practices, misunderstanding of project management’s role by top management, unwillingness to commit to its goals by functional department heads, . . . the steady drumbeat of problems continues. We are not offering an analysis of whether or not project management works (it does), or whether or not it begets problems (it certainly does). By and large, this discussion would beg the larger question and miss our key point: Problems illuminate prospects. This is not a book about project management problems, but project management opportunities. Our fundamental purpose is not to ix point to the problems that exist with project management as it is currently being practiced by a majority of organizations. The far more intriguing question has to do with the opportunities the steady move to project management creates for those companies that have achieved success in their operations. And this is the encouraging message that we hope all readers take from this book: In an arena that contains its share of project failures, there are also numerous examples of success. How are the firms that make project management ‘‘work” doing it? What is the secret to their success, a success that offers them a real competitive advantage in the marketplace? Where do the real opportunities lie? We believe that the key lies in refocusing our goals toward the customer. Many companies using project management develop severe myopia, focusing exclusively on internal operations and project development. They lose sight of the customer, the person, organization, or market for whom the project was originally intended. In our research, consulting, and business experiences, we are astonished by the number of firms that seem to forget this most obvious of points: Who is the client? This is not to imply that customers are purposefully ignored (although that does occasionally happen), but in the long-run, their customers’ concerns just do not seem to matter that much when they are competing with the activities of the project company. “If you build it, they will come,” is a line from the Hollywood movie, Field of Dreams. How many of us work for organizations that have a similar, Field of Dreams optimism when it comes to new product development? “If we build it, they will come” may sell movie tickets, but it will sell precious few projects. We recognize that our charge that there is a lack of customer focus is liable to raise a few eyebrows. Every individual we have ever worked with will resolutely claim that their company is “customer- focused.” And yet, when we start examining the evidence more closely, it leads to some uncomfortable, yet inescapable conclusions [...]... to Work: The ARO Story 175 Chapter Ten Building the Customer- Based Project Organization Index 211 193 xvii Building Customer- Based Project Organizations xviii This page intentionally left blank 1 CHAPTER ONE WHY A CUSTOMER- BASED APPROACH MATTERS During the decade of the 1990s, project management came into its own Firms who had never considered the use of project -based techniques have embraced the process... Why a Customer- Based Approach Matters 1 Chapter Two Background: The Challenge of Project -Based Work Chapter Three What Is Project Success and Failure? Chapter Four Project Critical Success Factors 61 79 Chapter Five Managing the Supply Chain for Projects Chapter Six Value Chains and Projects Chapter Seven Project Stakeholder Analysis 103 127 143 Chapter Eight Creating Customer- Based Project Organizations... careful management of their customers and suppliers As a result, we have been able to formulate some principles that apply across businesses, work equally well at managing relationships within xi organizations or between separate firms, and hold the key to success over time, in which past customers keep coming back for more Building Customer- Based Project Organizations offers organizations the key to... customer to our project team and parent organization Having a customer focus means shifting from a goal of maximizing our profits in one project by optimizing the utilization of our resources to a goal of superior service to the customer to maximize the value of the customer s project by meeting the jointly agreed project goals It also implies our willingness to adapt to changes in the customer s goals... likelihood of lowering risks for everyone Figure 1.1 Implementation: Customer Focus and Customer- Based Project Success 10 It is important to note that customer focus does not mean we are referring exclusively to project firms dealing with external clients Even within an organization, projects are created with a customer in mind An upgrade to the firm’s information system would involve numerous internal... mean to be customer focused and what do we do differently when we are focused on our customers? Why do we have to be customer focused, anyway? Finally, can we afford to be focused to our customers and their needs instead of being focused on taking care of our business, or is that actually the same thing? 9 In this book, we use the term Customer- Based Project Management (Figure 1.1).6 The customer focus... internal customer base Certainly these obvious examples of customer focus tend to refocus our attention externally, as in the case of build-to-order construction or engineering projects, new product introductions, and so forth Nevertheless, our experience points to the fact that a customer- based project management philosophy is fundamentally powerful and compelling regardless of the relationship of the customer. .. each of these stages on contractor -customer relations Sales refers to the organization s activities aimed at selling the client on the project All marketing activities, engineering Figure 1.2 What Is Customer Satisfaction in Projects? 12 demonstrations, and financial qualifications are included in this process As a result of the intense wooing of the customer, the customer satisfaction curve is highly... approach that focuses on customer satisfaction has the objective of operating within a much narrower range of client attitudes (Figure 1.3) Rather than allowing the satisfaction of the customer to go through the various peaks and valleys across the project s development and transfer, a customer- based project management philosophy is aimed at maintaining consistently high levels of customer satisfaction... client, or a group internal to your organization, the goal is the same: creating a focus in which the customer takes center stage, critical decisions revolve around their needs, and project managers and their teams are rewarded for the manner in which they satisfy their prime customers This book is an effort to refocus on the proper target Too many organizations adopt project management for its cost control . Ten Building the Customer- Based Project Organization 193 Index 211 xvii Building Customer- Based Project Organizations xviii This page intentionally left blank. 1 CHAPTER ONE WHY A CUSTOMER- BASED. Cover Page i Building Customer- Based Project Organizations Page ii This page intentionally left blank. Page iii Building Customer- Based Project Organizations Jeffrey K. Pinto Pekka. xi organizations or between separate firms, and hold the key to success over time, in which past customers keep coming back for more. Building Customer- Based Project Organizations offers organizations