Project Based Organization (PBO) Analysis

In today’s turbulent market, a lot of organizations is still seeking for a strategic advantage over others and a lot of them has actually seek Project Based Organization (PBO) as a way to propel them for greater height and thus, gain a strategic advantage over other companies. However, there are still questions how they can best make use of this new organization structure approach to create a synergy between company business mission, strategy, and project as well as portfolio management

PBOs refer to organizational forms that involve the creation of temporary systems for the performance of project tasks or activities. PBOs are gaining increased attention as an emerging organizational form, but there is very little knowledge on how PBO function in practice and what value or benefits in adopting the practice of PBOs. Needless to say, there are not many findings on how the extensive use of unique and temporary endeavors like projects can help influence the strategy and organizations design.

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By making using of project management best practices, PBO will help organization to become more dynamic, flexible and responsive when dealing with a turbulent environment. This PBO approach will ensure organization to be more creative and innovative when coping and responding quickly to the ever changing market demand.


In order to deploy project based management more effectively and efficiently, organization need to engage the top management to recognize this new approach of embracing project management best practices. They need to engage the right attitudes throughout the organization. In doing so, it will help the organization to fully reap the benefits of this new formidable and competitive weapon so as to fight for continue business growth and making sure the corporate will gain a better chance to survive in today’s highly competitive market.

Establishing executive ownership and responsibility for project based management with the organization is equated with authority in organization structures, the closer something is to the top, the higher its level of authority, acceptance, adoption and autonomy is perceived to be by the organization. It has to be a top-down approach whereby we need to engaged CEO, senior management of the company and sell them the ideas of how PBOs concept is able to propel the company to greater height.

Positioning the project based management function at the top in a hierarchical organizational structure establishes its autonomy and thus ownership of the responsibility for setting up, distributing, supporting, and managing the application of project management best practices. Enterprise-wide adoption of project based management best management called for single ownership of the function. Establishing common practices across an organization at all levels is difficult, if not impossible, without a clearly established sole ownership. We do believe, however that establishing a PBO is the right thing to do, because global competition in the marketplace will continue to increase. Therefore, project based management is one of the best answers for surviving global competition.

We need to first identify the roles, responsibilities of senior management team and their business function when structuring the PBO. Once we have identified their function focus and agreed upon their roles, we will then need to proceed to clarify relationships between these functions, like who is leading, supporting and following. This will help to ensure clarification on how these units can work or function together in a team. For example, typical teams in IT might include a strategic management team, an innovation management team, a project/program management team and a product management team. Each team is comprised of more than one unit and there are overlaps between the teams. The objective of this structure is to create team accountability.


Traditional management has been applied since twenty century and is well developed on the core principles of standardization, specialization, common goal, hierarchy organization, planning and control and external-reward (Hamel et al., 2007). A traditional organization is constructed based on those core principles of traditional management and functioned through vertical and horizontal operations which are a hierarchic structure with various functional departments as the vertical operation and a work process designed for specific generalized task models by using Standard Operating Procedural to link individual functional.

Project members from each project teams are dispatched from functional departments; this normally causes conflicts between functional departments and project teams when the resources and priority of urgency are conflicting.
Hard to assess employee performance since employee can belong to functional department and project teams. This will always cause confusion and unhappiness to employees’ involved.
What project he/she participates is decided by the project manager and department head instead of self-actualization, which reduces the performance of both personal development and organizational learning.
Hierarchy structure, functional department operation model and Standard Operating Procedure are characteristics of a traditional organization, which makes its disable in dealing with changes.
Contention of resources between functional department and project team, which will develop conflicts within organizations, resulting in disharmony and distrust.
No organizational synergy due to lack of inadaptable interactive relations between functional departments.
Lack of ability to adapt to changes in related to market uncertainty or other external factors. This is caused by rigid, stagnant Standard Operating Procedures which are regulated according to generalized task model and therefore not capable of responding to any changes conditions timely.

A project based organization is a structure that facilitates the coordination and implementation of project activities. Its main reason is to create an environment that helps enhance interactions between team members with a minimal disruptions, overlaps and conflict. One of the important decisions of project management is the type of organizational structure that will be used for the project.

Every project has its unique characteristics and the design of an organizational structure should consider the organizational environment, the project characteristics in which it will operate, and the level of authority the project manager is given. One of the main objectives of the structure is to reduce uncertainty and confusion that typically occurs at the project initiation phase. The structure defines the relationships among members of the project management and the relationships with the external environment.

In PBO project managers have a high level of authority to manage and control the project resources. The project manager in this structure has total authority over the project and can acquire resources needed to accomplish project objectives from within or outside the parent organization, bind only to the scope, quality, and budget constraints identified in the project.

In the PBO, project members are assigned specifically to the project and report directly to the project manager. The project manager is responsible for the performance appraisal and career progression of all project team members while on the project. This leads to increased project loyalty. Complete line authority over project efforts affords the project manager strong project controls and centralized lines of communication. This leads to rapid reaction time and improved project based organizations are more common among large and complicated projects.

10 Tips by the World’s Best Innovators
Organize yourself globally because it beats local
Life treasures through communication
Turn “not invented here” into a quality seal
Focus on Big Ideas (there are enough small ones)
Think platform
Minimize time-to-test
Appoint your customers as your boss
Leverage design
Take care of the jewel innovation organization culture that reacts to changes
Use business model innovations as the turbo
What does PBO has to do with Innovation?

We will start by defining both innovation and projects and identifying common ground in their concepts. Projects and Innovation share common roots in their definitions, both are:

Temporary: they end when they become integrated to the normal routine of operations
Produce unique results: the end product or service should be, in some way, different than the existing.
Characterized by progressive elaboration: they cannot be understood entirely at, or before, the start, therefore the decision-making and realization phases are iterative.
Many statements concerning innovation can be applied to projects and vice versa; to a certain degree, many of the characteristics of both are interchangeable.
Classic definitions of innovation include:
The process of making improvements by introducing something new (Wikipedia, 2007)

It seems reasonable from above description that projects and innovation share a natural conceptual background. It would be hard to imagine how a traditional organization would be able to innovate since their structure only has roots in routine, repetitive works and a much predictable work output and stagnant culture.

The whole philosophy and the historical background of both projects and innovation seem interlinked. A strong project outlook with proper governance structures would typically help to promote strategic goals that call for development of innovation. In their quest for innovation, many organizations have felt the need to establish social networks; the project approach has the advantage of proposing an internal network between projects if properly enhanced through program management, as well as involvement of stakeholders.

Since Schumpeter (1947), many researchers have demonstrated that innovations are most often “new combinations” of existing technology. “Thus, individuals or divisions within a firm must be both able and willing to share their capabilities or resources with other parts of the organization. This author also mentions that organizations need to create common language, otherwise the ability to share knowledge will be hampered (Sampson, 2007). To counteract some of these pitfalls, several companies have found it useful to introduce systems where staff from all levels of the business can input their ideas.

An interesting example of the usefulness of such systems comes from Paul Sloan (2006)

“A copy-machine operator at Kinko’s, a chain of copying and document services stores, noticed that customer demand for copying dropped off in December. People were too preoccupied with Christmas presents to do much copying for the office. So he came up with a creative idea: allow customers to use Kinko’s color copying and binding facilities to create their own customized calendars using personal photos for each of the months. He prototyped the idea in the store and it proved popular. The operator phoned the founder and chief executive of Kinko’s, Paul Orfalea, and explained the idea. Orfalea was so excited by it that he rushed it out as a service in all outlets. It was very successful and a new product – custom calendars – and a new revenue stream were created.”

Corporate recognize that their organizations are always in danger of developing products and services with little or no market appeal. Some organizations are great at innovation like 3-M that produces 30% of its revenues from products that did not exist 4 years ago. However, others are really very bad at innovating such as Xerox who is famous for innovations it did not exploit, like fax machines and laser printers. Others, like Procter and Gamble have successfully reversed a 40 years innovation slump from their last major breakthrough (Pampers in 1961) with recent innovative products like “Swiffer” and Crest’s “Whitestrip” (Brooker, 1999; Moss-Kanter, 2006). Other companies just struggle with innovation like Motorola when it resisted going from analog to digital and lost its lead in cellular phones, or Kodak, when it lost its share of the camera market to Canon and Sony for having miscalculated the impact of digital camera in the mid 90’s.

Although organizational innovation needs more than just taking up a project view, we have to examine if the project management approach, when well integrated and focused on the broader view of project, could possibly promote principles that are conducive to innovation.

Rosabeth Moss-Kanter (2006) describes four major reasons for failure to innovate:

Strategy: Lack of sound innovative investment spread between breakthrough and incremental
Process: Tight controls that strangle innovation and refusal of deviations from plan
Structure: Lack of connections between innovation areas and the rest of the business
Skills: Lack of networkers, communicators or connectors and relationships

Most traditional organizations are better suited to stable environments and employ a top down approach to innovation. Strategy is formulated at the top along with the major initiatives for achieving it. Some of these initiatives will be innovative in nature, related to the development of an innovative process, product or service and often led within an R&D Department, independently from the rest of the business. Top down approaches may solicit input from deeper in the organization, but the formulation of the innovative ideas remains at the top or within one of the organizational silos. Many of these organizational models are encouraging excessive control and reporting and, as Holmstrom, (1989) argued: bureaucracy, sometimes symbolic of the old hierarchical organization, can be hostile to innovation.

We have seen that organizational structure and governance are determining factors in the development of human and organizational innovation and that PBOs change the nature of the traditional organizational structure.

We can therefore ask ourselves:

“How can a PBO structure influence innovation (either positively or negatively)?”

Three recent empirical studies (Bresnen Goussevskaia & Swan, 2004; Lindkvist, 2004; Dovey & Fennech, 2007), have recognized that organizations that adopt a project management approach in a traditional mechanistic context, often have to deal with a choice between the flexibility and dynamism of the project approach and the desire of firms’ functional and strategic stakeholders to exercise control at organizational level.

The authors have already reported on a case study that demonstrates evidence of such a division when an organization is moving from a more traditional model to the PBO model:

“This very diverse and competent group of people had approached a new task in a most conventional manner, which seemed coherent with the ingrained performance paradigm, still a remaining legacy of the organization’s historical culture and values. It was felt that one of the important emergen needs of the group was to “develop lateral, more creative thought processes and encourage a bit less conformity” to foster use of available potential and growth in this new work environment.” (Thiry, Deguire, 2004)

Sampson (2007, p.382-383) argues that “the effect of the organization on innovative performance is contingent on absorptive capacity.” A program approach where strategic decisions are implemented through a series of related and interdependent projects (Thiry, 2004a, OGC, 2003) would support this approach, as change and innovative initiatives will be broken down into projects manageable, not only in technical terms, but also in absorption capability terms. The selection of investment activities through portfolio management is also essential, for example, at Apple in 1996, after Steve Jobs was reinstated as CEO, he led a massive review of the R&D effort. As a result, Apple focused its resources on projects that had the greatest potential, and eventually produced the iMac, iBook, iPod, and iTunes (Vise & Malseed, 2005).

Most traditional organizations experience communication and resource allocation problems, especially between functional managers and project managers (Alsene, 1999; Bishop, 1999; Payne, 1993); this generates issues at the executive level, when conflicts are escalated and disturb the “political harmony” of the organization (Dovey & Fenech, 2006). This last empirical study showed that even when the value of a “projectized” approach to deliver strategy is demonstrated, it can still be challenged by the organization’s establishment.

Many authors have confirmed that “the environment in a project-oriented organization is more dynamic and discontinuous.” (Huemann, Turner & Keegan, 2004) and that the role of the project manager has evolved from that of a single person with specific technical skills to that of a team of individuals which exercise a wide ‘function’ that spans from strategic to technical (Frame, 2002)..

The project management (PM) function is now evolving towards a co-managed business-technical partnership (Frame, 2002), which gives it authority over strategic level resources and therefore true decision-making power (Spradlin, 2004).

We feel that given the nature of the project/program approach, PBOs can significantly contribute to the development of a distributed network that forms inside the organization and takes on the role of much of the innovation work. Through projects and programs, individuals become connected to the network and generate their own ideas, conduct experiments, do their own findings, build support, and help transition some of the ideas to formal pilots or direct implementation.

An interesting example is Harley-Davidson, Inc. Management at Harley-Davidson has been recognized worldwide for its successful use of progressive, cutting-edge management techniques (Certo, 2003). This company has long developed its use of cross-functional teams to design new products and representatives from engineering, purchasing, manufacturing, and marketing have always had some influence on the future direction of new products. In order to achieve this, management has been committed to cross-functional teams and these team members work together daily and are totally dedicated to the new product development process on a full-time basis.

We have therefore seen that innovation, for most companies, depends upon the individual and collective expertise of employees and it seems to have become more important for an organization to be cross-functionally excellent than functionally excellent. In addition to formal planning at the business level, best-practice companies are using cross enterprise initiatives on major issues in order to challenge assumptions and open up the organization to new thinking. This further enhances innovation as organizations are, for example, able to match their technological developments with complementary expertise in other areas of their business, such as manufacturing, distribution, human resources, marketing, and customer relationships.

To lead these development efforts, cross-functional teams need to be formed and PBOs would make a significant difference in developing both the culture and necessary structures to help businesses in their quest towards innovation.

As reported by Dhyani and Singh (2006) in the following case, most traditional mechanistic models do not endorse an innovative philosophy: “Service Delivery is based on standards, repeatability, reference architectures, proven and robust technology, guaranteed quality, efficiency and meeting SLAs. The resulting culture is inherently in conflict with innovation, which inescapably entails increased risk. SD has no processes or targets for regularly engaging in Client Innovation. It does not employ people for this purpose and has no measurements or incentive programs to perform this task and indeed expects the opposite behavior.”

PBO through the consistent use of cross-functional teams presents a clear organizational advantage over the more traditional mechanistic organization as it supports individuals in its effort by policies, practices and resources that acknowledge this risk and provides space for experimentation. The organization shoulders some risk as do individuals and teams. Everyone in the innovation culture strives for success and learns from failures by documenting them and hearing about them from others. Given that this is a necessary condition for empowering different players and that sharing failures can be difficult for human beings with sensitive egos. The team setting provided by PBOs most probably allows the diffusion and publication of failure with minimal harm to individual egos and enhances organizational learning that can be used towards future innovative initiatives.

If we accept the view that innovation can be seen as an organizational means to reach strategic goals, it would be interesting to explore and understand the link between the implementation of a PBO structure and culture and organizational innovation and to compare it to more traditional settings. In particular, we can refer to the fact that, since Burns and Stalker (1961), many authors recognize that traditional mechanistic organizations are struggling to adapt in today’s turbulent environments. Nevertheless, in order to sustain innovation, PBOs need to be structured to foster creative synergy between vision and mission, strategy, portfolio, program and project management and be framed in a project-based governance approach; they also need to generate tangible value for the stakeholders. Rosabeth Moss-Kanter, who has conducted research and advised companies during what she terms: “four major waves of competitive challenges” (2006, p.74) since the 70’s claims that successful innovation requires “flexible organizational structures, in which teams across functions or disciplines organize around solutions, [which] can facilitate good connections.” (2006, p.82)

“[Innovation] is among the essential processes for success, survival, and renewal of organizations, particularly for firms in either fast-paced or competitive markets”

(Brown & Eisenhardt, 1995, p.344)

“‘Innovation’ refers to a phenomenon where a new idea has been implemented into action.” (Taatila, 2005).

the recognition that project management practice can and will influence organizational practices and, in so doing;
that an alternate position may open a door for a redefinition of organizations through projects by supporting the adoption of new challenging organizational theories for project-based organizations;
that the adoption of these new organizational models could generate higher stakeholder involvement, create more value and enable better integration between projects and strategy to sustaining innovation.

To adopt a project-based organization presents some challenges to senior managers:

Project Manager has little or no “position power.” The position power which is so prominent in functional organizations will change when project-based organization is implemented. Project Manager will have minimal control over the career path of project members. Instead, project members require an independent career path over which they themselves have control and to which the project work can contribute.
Senior managers need to develop project managers and project management so that the project managers can lead based on influence rather than positional authority.

Conflicts arise over project member time and resource requirements. Thus senior managers must have a good plan and work schedule priority. Alternatively, senior manager need to come out with special reward scheme to allocate scarce resources-individuals that will help to maximize the value of the project.
No clear Organizational boundaries. Project management often requires seamless cooperation among organizational units. If project managers/members see evidence that cooperation is not valued, then achieving cooperation is going to very hard. Senior management needs to create a structure where cooperation is rewarded
Time and organizational pressures abound. Senior management must be ready to support the best practices that will help to reduce project time. This includes forming a core team system, having a project goal vision, allowing more time for project planning so as it won’t interfere with project operations, facilitating communication with customers, and supplying necessary resources.
Project members do not know one another. Effective project teams require a high level of trust and openness. The climate of trust and openness will need to be a top-down approach. If senior managers are not trustworthy, truthful, and open with each other, there is little chance that project members will be so with one another. Trust and openness are the antithesis of most bureaucratic organizations. Senior managers coming from a less trusting organization will have difficulty developing high levels of trust.

Having knowing that successful innovation needs flexible organizational structures, in which cross-functional teams or disciplines organize around solutions, PBOs could be a possible answer when their structures provide horizontal integration from business strategy to operational benefits and vertical integration between corporate objectives and the prioritized portfolio of projects. It is also very likely that the adoption of an integrated wide-scale project approach could enhance an organization’s capacity for innovation for the following reasons:

Given the nature of the project/program approach, PBOs can significantly contribute to the development of a distributed network that forms inside the organization and takes on the role of much of the innovation work.

Along with these basic innovation processes, in a, PBO structure locus of control and decision making is normally decentralized through the creation of program and project teams in order to modify aspects of the culture so employees receive consistent and positive messages about initiating and implementing change and innovation.
In PBO structures, the stakeholder approach is combined to the concept of value and permeates all levels of the organization by increasing the reach of both stakeholder and value concepts.
An integrated vision of projects would directly link projects and programs to governance and strategy, encouraging social networks and value creation.

In conclusion, we would argue that the sensible adoption of an integrated project approach should not only encourage the emergence and enactment of new organizational dynamics, but develop a stakeholder approach and innovative concepts leading to increased value creation. Finally, we can also conclude that it is not enough to set up a PBO if we use a mechanistic framework. In order to foster innovation, all the project and organizational elements must be integrated from start to realization.


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