Originally Published - July 25, 2008
The need for agility in business grows ever more pressing. Reacting in real time is vital, and time is a commodity always in short supply. Many companies are currently heavily focused on financial measures, especially how the numbers look at the end of accounting periods. While financial reports are important, relying on them too heavily can lead to a business geared to analyze the past rather than one driven to manage the present and prepare for the future. If your business is driven by accounting periods alone, then it is poorly equipped to react as dynamic situations unfold. Reacting to financial results is like reading the newspaper—you can see what has happened, but it is much too late to do anything about it.
Traditional organizational structures and systems can make understanding real-time operational situations almost impossible, delaying corrections, costing the business money, and—in a downturn—even threatening its survival.
The criteria for business success are normally measured in financial terms, but the day-to-day management to ensure these monetary goals are met needs to look beyond pure historical financial-reporting. Today, success is all about the difference between measurement and management.
Cost, time, resources, cash, and risk have long been the five fundamentals of project management. These performance indicators need to be observed and controlled in real time in order to manage and deliver a successful project. Projects typically cross departmental—and often company—boundaries, and they always have a start and an end. In today's business climate, there is much that can be learned from this approach to help manage the whole organization through the downturn and beyond—even for businesses that do not see themselves as operating in traditionally project-driven sectors. Project management techniques, applied across the board, can help an organization evolve into a true project-centric business.
In today's globalized business environment, a project-centric approach means putting together the best mix of resources—people, production, design, sales, marketing, service, and so forth, both from within the organization and from the extended enterprise—for each product and service offered by the business in order to ensure the best chance of success. This may mean moving away from traditional thinking. Traditionally, production has always been done in house, with certain products tied to specific locations. Today, for instance, a manufacturer must make a business case whether to make or buy a component or an entire product. If you have the right information in real time, you can make the necessary strategic decisions about which resources to use, where to locate elements, and whether to perform various tasks in house or through subcontractors, outsourcing, or offshoring.
The right mix to deliver success can often change. The benefits of yesterday's cost-driven decision to offshore manufacturing to China might be offset by tomorrow's increase in delivery costs due to rises in the price of oil. A historical perspective on costs is no longer enough to manage the business. Moreover, cost savings must be balanced against nonfinancial measures, such as quality, skills availability, and environmental concerns, as well as risks such as the potential impact on brand and reputation. The focus must shift from backward-looking financial measurement based on accounts and cost centers, to company-wide management of cost, time, resources, cash, and risks, supported by real-time information.
This project-centric concept needs to be instilled throughout the business, at all levels and across all departments. Many managers and executives are left with systems that don't provide easy access to performance metrics in real time. It is often these individuals that regard a project as something that delivers a specific service or tool to the business, and who don't see it as a fundamental approach to delivering the core goals of growth and profitability. By compartmentalizing the role of projects, those management teams are missing out on a very efficient approach to running the complete enterprise. Structuring the whole organization on an integrated set of projects enables success to be clearly identified, measured, and communicated. As we approach the back end of the 21st century's first decade, the project-centric approach is evolving into a clear structure for the modern, agile business.
Project management techniques should no longer be the reserve of specific industries or departments. Setting precise goals, with a defined budget, to be reached within a specified time frame, is now more common than ever before. The fundamentals of project management are now core to companies specializing in areas such as contract manufacturing, construction, and contracting, as well as in the service and traditional asset management industries. These sectors are likely to have taken a project-centric approach to running major parts of their business some time ago.
The construction and contracting industries are great examples of the project-centric approach. They are 100 percent project-focused in how they deliver products and services, but do they take the same approach to make sure the financial goals of the business as a whole are reached? Some do, but not all, as even these types of businesses struggle with measuring the past rather than managing for the future. Real-time visibility throughout the whole project life cycle, across organizations and all company business processes, is the key to success.
Building a company's business on a network of integrated projects not only sets out the logical steps to business success, it enables managers and senior executives to have better and faster visibility of progress, enabling operational and financial risks to be managed more closely, corrections to be made, and the consequences minimized.
What is key here is that businesses see the project as a real-time execution model, not just as a framework for planning and follow-up. Project-centric business applications make this work, integrating information across all departments, such as human resources (HR), finance, production, and others. This agility is even more essential in a tightening global economy.
The current accepted approach to business makes understanding a company's real-time performance difficult. Quarterly figures are often not available for weeks after the end of the reporting period, so this information is already out of date by the time it is available to the business. Yet chief executive officers (CEOs), investors, and customers are demanding more visibility, improved real-time access to information, and faster reaction to change. Taking a project-centric approach pulls together forecasted, estimated, and actual metrics, and puts monitoring in place to provide a view of all elements—not just financial actuals.
Operational and financial risks can also be evaluated on an ongoing basis, and strategies can be defined upon these. This approach delivers a level of analysis on which decisions can be made quickly and with confidence. The business becomes agile.
Project metrics are common practice for staff of all levels. They provide the right insight into the business. An enterprise resource planning (ERP) system that is built on project-centric fundamentals can provide the insight that managers need to understand the immediate situation, and the effect that adjusting resources, costs, and timings on individual projects will have on larger financial goals.
Significance of Time
Time is a great leveler, as the problem of allocating time applies to all businesses, irrespective of size and financial strength. For example, it has been proved time and again that the first product to enter a market achieves the highest profits. It is better to be a leader than a follower, and launching a new product into a new market involves major risk, cost, cash, time, and the best use of key resources. This is a forward-looking application of project-centric thinking.
It is often stated that the key constraint to execution is the availability of key executives' time. For example, when pursuing the global expansion of a business and establishing international operations, being able to execute to a predictable time plan is paramount. Maintaining the timeline is difficult if key executives do not have real-time visibility of ongoing processes, preventing them from proactively making timely decisions. This is a clear benefit of the use of project-centric business applications.
More and more companies in the manufacturing sector need to look at their product portfolios and the mix of in-house production, outsourced production, and after-sales services and spares that will deliver the greatest profits. Contracts often run for defined quantities of specific products over a finite period of time. The manufacturer may have several projects on the go at any one time. Globalization has made outsourcing easier for the established brand owner. As a result, more and more businesses have increasingly complex supply chains.
Changes in the global economy have released such industries as utilities from public ownership, and have created global players that own many different businesses in different countries. Sales and marketing entities in western Europe are selling electricity that is generated by a different company and delivered to the consumer on a network owned and run by yet another company. This focus on a core business service by different entities in the supply chain enables those holding the relationship with the consumer to chop and change providers to suit consumer demands and producer improvements. Suddenly the whole business is being run on project-centric fundamentals: cost, time, resources, cash, and risk.
But what does it mean for your business? The CEO of today must embrace this project-centric approach and manage the business by focusing on the five elements presented here. There must be a change from siloed organizations geared to measure the past, to companies driven to manage the present and to prepare for the future. This is a world where companies need to become project-centric, using systems that provide the agility needed to react instantly. To ignore this challenge will make it difficult to weather the downturn and stay ahead of the increasingly global competition.
About the Author
Thomas Petersson, vice president of Products and Marketing at IFS, is responsible for managing the product direction of IFS Applications and ensuring that the functionality keeps abreast of trends affecting the global customer base. He has been with IFS since 1985, and has held various senior management positions, including management responsibility for Europe, the Middle East, and Africa.