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How to balance exploitation of a proven business model or product with exploration – that’s the pursuit of a breakthrough innovation. In fact it’s the key strategic question for many businesses. The organizational-level version of this question is how to align your most crucial projects with the existing organizational structure. The tension is obvious: projects are about solving the non-standard problem while the organizational structure, on the other hand, is about delivering the strategy in a more or less stable, routinized set-up.
Managing this alignment well is often an overlooked precondition for project success, especially when it comes to innovation.
Companies typically get the balance between organizational structure and project set-up wrong in one of two ways. In the first scenario, the project set-up is tightly woven into the line organization. As a result it becomes difficult to bring about notable innovations because “business as usual” crowds out new ways of thinking and doing things. In the second scenario, the project is set up in a parallel structure with little connection to the permanent “lines and boxes”, in which case it will be hard to leverage resources and knowledge for the project’s objective. In both scenarios it can become difficult to direct enough management attention to the project.
One-off projects and project portfolios
In considering the trade-off, it is helpful to differentiate two typical situations. In the first situation, projects represent a one-off to solve a specific issue or pursue an extra-ordinary opportunity, such as the implementation of a new software platform or the exploration of a new technology. In the second situation, there are often settings in innovation management where projects are the default organizational model for development and innovation activities. Examples of this include the project portfolios of large pharma, IT services, or manufacturing companies.
The issues typically start when the project entities are not autonomous units, but draw on resources, experts, and budgets from different organizational units and functions, as is often the case in multidisciplinary development projects. In such cases each interaction can lead to tensions and prioritization questions, and thereby slow down decision making and project progress. Strongly ring-fencing resources and people, or even separating them into distinct silos, can be one approach. But this limits access to the experience and knowledge of the line organization, which is essential in the case of rather incremental innovations, such as introducing a new technological feature for an existing product.
Accountability, goal clarity, and focus: three ways to set-up projects in accordance with the organizational structure
The best way to achieve a balance between “line” and “project” will depend on many factors and trade-offs, like those mentioned above. However, there are three proven principles to consider when setting up projects as part of your organizational structure.
1. Accountability: It may sound like a no-brainer, but clear accountability, leadership, and sponsorship of each individual project is key to aligning the project with the line organization. Especially in dual – or even triple – matrix set-ups (e.g. combining business unit, function, and/or geography), an individual project manager can face multiple reporting lines along different matrix dimensions and project roles. So who will make the decisions the project manager needs to move forward? The answer to this question requires clear and dedicated ownership of the project, including a strong link to the line organization in order to ensure oversight, sponsorship, and access to escalation paths in case there are conflicts and critical trade-offs.
2. Goal clarity: A transparent and shared understanding of success and critical milestones, which also has a link to the overall organizational strategy, is another principle to check for when setting up a project. Clarity about goals supports alignment with the line organization, as it helps to prioritize in the short term and legitimizes project requirements in the long term.
3. Focus: Finally, focus the project portfolio on the most critical projects. Again, this may not seem like totally surprising advice, but many organizations find it hard to focus. What happens if a project portfolio organization lacks concentration? For one, pursuing the principles of accountability and goal clarity becomes harder. It is more difficult for stakeholders to self-manage their accountability if they’re faced with a large portfolio of projects, not to mention limited “mental shelf space”. It is also harder to maintain clarity about goals when faced with many different options on where to engage.
The involvement of functional experts is one important dimension of this need for focus. In one particularly effective development organization, the general rule is that if someone is engaged in a project, she or he should have at least one full day a week, or 20% of her or his working time, reserved for that project. This minimum threshold of meaningful engagement helps to make resource constraints transparent and therefore supports discussions of trade-offs and focus.
To learn more about the Management Kits approach to organizational structure, click here.