From 'Management by Objectives' to 'Strategic Project Management'

What follows below is a draft that examines the evolution of management from Management by Objectives (MBO) to Strategic Project Management. It shows how Project Management and Management by Projects are different. It discusses about the present state of Project success and shows how the lack of a clear strategy is a major reason for project failure in organizations. It introduces the concept of “strategic project management” and presents it as a solution to the problems faced by organization, elaborates on the concepts, implementation and also mentions how traditional project management plays a key part in strategic project management.Objective is to educate the reader about the importance of project management as a strategic competency and its relevance in a fast changing world where aligning organizational objectives with flawless project execution is a key differentiator. 

Since this is a draft, feedback / criticism is welcome.

Introduction

We can’t but wonder about the kind of project management practices that would have been used in building of Pyramids or the ancient temples of India, as Practicing Project Managers. The fact that the structures stand today brings out the obvious fact that they have stood the test of time and is a testament to the quality of the product. 

Considering that this was done aeons ago, when royalty was the sponsors, and the constructions took a long period of time, indicate that the only goal was to get the job-done and not worry about cost or schedule. Unfortunately for us, this kind of a luxury can only be dreamt of by Project Managers of today, since they need to closely manage and control the triple-constraints of a project (Scope,CostTime).In fact, in today’s world where better Return of Investment (ROI) is expected on the money-spent, we as project managers are not even sure that a project with end date ‘not-known’ and a budget that is ‘unlimited’ would even get considered for approval, leave alone getting approved. 

It is obvious that there should have been some kind of a structured project management approach and quality-consciousness, given that the buildings still stand today, though we don’t know what it was. Just goes on to show that documentation has always been an issue. In the last hundred years, Taylor’s Principle of Scientific Management was considered as one of the modern approaches followed to ensure standardization and optimization in projects and in operations. Even this wasn’t enough and World War I and II made people feel the need for better approaches to manage work on hand due to limited resources and time constraints. The focus then turned to Peter Drucker and his Management by Objectives.

Management by Objectives

Early days of project management coincided with the push by the Then business schools’ towards Management by Objectives (MBO).  Management by objectives (MBO), also known as Management by Results (MBR), is a process of defining objectives within an organization so that both management and employees agree to the objectives and understand what they need to do in the organization in order to achieve the objectives. The term "Management by Objectives" was first popularized by Peter Drucker in his 1954 book The Practice of Management. 

The essence of MBO is participative goal setting, choosing the course of actions and decision making that is aligned to the objectives set. An important part of the MBO is the measurement and the comparison of the employee’s actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.

MBO has its detractors and notable among them was W. Edwards Deming, who argued that a lack of understanding of systems commonly results in the misapplication of objectives. Additionally, Deming stated that setting production targets will encourage workers to meet those targets through whatever means necessary, which usually results in poor quality.

Management by Objectives did not help organizations to evolve over a period of time by accomplishing strategic objectives. The strategic objectives can be anything like a new product launch, creating market share in a new market, increasing revenues, reducing costs or creating greater value for share holders.Deming’s warning on the big picture wasn’t heeded to and Management by Objectives proved to be a failure. 

In Peter Drucker’s words, “Management by Objectives works – if you know the objectives. Ninety percent of the time you don’t”. This lack of success in Management by Objectives paved the path to its next evolutionary step of Management by Projects (MBP).

Management by Projects

Tom Peters in his book ‘In Search of Excellence’ co-authored with Robert Waterman Jr and published in the year 1982, championed the cause of Management by Projects. To understand ‘Management by Projects’ we need to look at the work performed by organizations.

The work performed by an organization can be categorized into two categories, namely

• Projects
• Operations

Project and Operations are same in the sense that they are both 

• Performed by people
• Constrained by Limited Resources
• Planned, Executed and Controlled

They differ in that

• Operations are ongoing
• Projects are temporary and unique

Management by Project allows people to manage both types of work as projects. This approach recognizes that projects can’t be treated in isolation from work. All the work needs to be considered together so that the right projects are worked upon by the right people at the right time. The priority of projects is determined by the strategic objectives of the organization.  Hence we can call Management by Projects as an approach towards conducting business. 

The difference between Project Management and Management by Projects is listed out in the Table1 below

Project Management	Management by Projects
The direction and management of a Project	The integration, prioritization, communication and continuous control of multiple projects
A discipline	An operating environment
Project-wide	Enterprise wide
A tactical issue	A strategic issue
Goal focused	Concerned about operational effectiveness i.e. the best we can achieve by the help of available resources
More static; Gives a snap shot view of a project and is as good as the last updated plan	More dynamic, providing real time information on the projects in the organization

From Table 1, it is clear that Managing by Projects is not the same as having more of project management. We can also make it out that the drivers for an organization to move towards management by projects is as follows

• Operational effectiveness; Making the best out of the available resources
• Dynamic; providing real time information about the organization, with respect to its strategic goals
• Better Resource management: Allows the organization to manage its resources better by aligning with the strategic goals

In the book ‘Advanced Portfolio Managementand the PMO’ by Gerald I Kendall and Steven C Rollins (J Ross Publishing 2004), the authors call out the following as symptoms of defective strategy

S.No	Symptoms of Defective Strategy
1	Project Managers fight over resources
2	Project priorities frequently change
3	Managers have authority to unilaterally approve and ‘fund’ pet projects
4	Projects are launched regardless of availability of resources
5	When a goal is met, the expected improvement is not achieved
6	No linkage between projects and strategy

 The ‘Management by Projects’ approach helps in ensuring that the above symptoms of defective strategy are addressed by setting the project priority at an organizational level. In the subsequent sections, we explain how the idea of ‘Strategic Project Management’ is an extension of the idea of ‘Management by Projects’ and is implemented using Project Portfolio Management. But before that, we would take a short detour and look at the present status of the project completion in America and United Kingdom.

Strategic Project Management as the Solution

The solution is to use Project Management as a strategic tool. According to Managing Projects for Value, by John C.Goodpasture (Project Management Essential Library 2001), Strategy is the term for the collective, actionable steps necessary to achieve goals and implement operating programs.

                                                 

Since all projects proposed by an organization compete for the limited resources and support, strategic project management views all of the organization’s projects together as component of a portfolio and makes strategic choices in their support.  The difference, according to PMI’s Standard for Portfolio Management, is that Project and Program management focuses on doing things right, while portfolio management focuses on doing the right thing.

 

In his paper 'Introducing the revolutionary Strategic Project Management Maturity Model’, Heerkens. G defines Strategic Project Management as a series of practices, procedures, processes, tools, and behaviors which, when considered collectively, characterize the extent to which an organization creates effective linkages between excellent project management practices and excellent business practices– all in the name of advancing the overall strategic objectives of the organization (Heerkens, 2007)

We can see that the above definition encompasses the key points discussed in Table 1 about ‘Management by Projects’. The definition also extends the points to include procedures, Processes, tools and behaviors which help the organization create effective link between excellent project management practices and business practices.

But if we think that knowing strategy through the traditional strategic planning exercise will be good enough, nothing can be farther from truth. Strategic planning begins with initiatives and develops objectives for Senior and Mid-level managers who then push it down into the lower levels. While each level may accomplish its objectives, strategy remains limited to the executive level, while the lower levels still work with management by objectives (MBO) whose shortcomings we only know too well.

Strategic Project management differs from Traditional strategic planning in the following ways:

• It aligns key business processes of strategic planning, strategic goal setting and enterprise project management.
• Using the analogy of financial portfolio, it allows the effective use of constrained resources
• Like a well managed portfolio of investments, an efficiently managed portfolio of projects ensures a high ROI because projects can be managed together. The leadership team can select right investment opportunities from a mix of potential opportunities, that are in alignment with the strategic objectives of the organization
• This allows the organization to set a short term, mid-term and long term goals thus providing the much needed focus to reach the targets

Considering project success in the context of the achievement of the strategic goals of the organization is the way to proceed for any organization as the success rate of projects increase when organizations link their projects to their business strategy. The concept of Strategic Project Management can be implemented using Project Portfolio Management.

Basics of Project Portfolio Management

The Project Management Institute (PMI) released ‘The Standard for Portfolio Management’ in 2013. According to PMI, “Portfolio Management is an approach to achieving the strategic goals by selecting, prioritizing, assessing, and managing projects, programs, and other related work based upon their alignment and contribution to the organization’s strategies and objectives.”

Portfolio Management combines the organizations focus of ensuring that projects selected meet the portfolio or organization strategy with (b) the project management focus of delivering projects effectively and within their planned contribution to the portfolio.  This combination is important because it is only under this scenario that effective project management becomes a strategic competency because it helps the organization to advance it strategic goals.

Challenges faced and suggested solutions

Economic pressures, such as cost constraints or the inability to raise prices or cut costs without losing customers, often force organizations to focus on the tactical day to day or quarterly goals, with very little time to think strategically with a long term focus. The adopters of Strategic project management may encounter challenges in the following areas.

S.No	Challenges Faced	Suggested Solutions
1	Without buy-in from high level decision makers and their ability to give guidance and support , strategic project management will fail.	Executive Sponsorship :To have a powerful executive champion, whose presence will also help manage internal politics
2	Lack of Business acumen for deciding project priority in the portfolio	The portfolio manager should have enough business acumen to decide project priority
3	Project Management Process not strong enough	Since any strategy is only as good as the implementation, the strategic goals should be complemented with the right kind of project management process to ensure successful project delivery
4	Unrealistic timeframes and budgets that set the strategy to fail even before execution starts	Efficient and effective execution of projects across the board depend upon honest and realistic timeframes and budgets
5	Veering off course in times of trouble and returning to the reactive mode of managing individual projects	It takes a great deal of business acumen and persistence to stay the course in executing the strategy
6	Being Rigid and out of touch with external world	Strategic Project management means that the Organization stays in touch with grass roots and reality. As the external world changes, internal priorities also change and executive guidance has to be taken accordingly.

 Table 3: Challenges faced and suggested solutions for adopters of Strategic Project Management

This section shows how Strategic Project Management can be implemented by good Project Portfolio Management practices and how it has extended the ideas of Managing by Projects. The framework for Portfolio management, once implemented, gives any organization the confidence to take on challenging projects that are in alignment with the strategic objectives of the organization.

While the Portfolio Management framework ensures that the organization successfully attempts execution of a challenging project, excellent project management practices ensure that the project is also finished successfully, as measured against the goals set.

Summary

Traditional Project management comes as reactive where as the fast changing world of today, demands project management to be proactive. The paper has elaborated on how and why Project Management should be treated as a strategic competency and the requisites for it to be treated as the same.  This shows that Project Management as a strategic competency is a basic quality for any organization and hence mandatory for its survival.