The Stagnation Problem of Project-Based Business

Project-based industries have remained stagnant or even declined in productivity over the last 30 years. On the other hand, traditional industries such as retail and manufacturing continue to increase productivity and succeed. Why?

Of course, we can start to list any number of supposed reasons, starting from poor project business management to the lack of technological innovation. However, there is one fundamental problem that drives this stagnation, and that is failing to recognize Project Business on the same macro-industry level as Retail or Manufacturing Business.

For example, a retail business is all about retail. Everything it does and the systems it uses supports the processes of retail, from demand planning to supply chain to the point-of-sale. And no matter what you sell as a retail business (clothes, electronics, home goods, etc.), the processes and systems are basically the same.

This is not the case for project-driven industries. Unfortunately, construction, engineering, ETO manufacturing, and professional services are seen as completely different industries, even though 80 to 90 percent of what they do is the same – projects. Therefore, they end up organizing and supporting their business processes in a haphazard and disjointed way. The problem is further exacerbated by the lack of business systems support for these companies.

Conversely, retail and manufacturing industries have been able to integrate, streamline, and automate their businesses over the years. No matter what retailers sell, the core of what all retailers do is the same. Similarly, no matter what manufacturers produce, the core of what they do is the same.

In the same way, no matter what type of projects you do, the core of what you do projects, and that should be the focus of how you structure, organize and support your business processes.

If you are a project-based company, how can change your thinking to improve your situation?

This is the second blog of a seven-part blog series (see the first blog here) that discusses why productivity in Project Business has flatlined by addressing the seven challenges of a Project Business.

Challenge #2: Failing to Identify as a Project Business

It’s impossible to identify as something you don’t know exists. Although the term Project Business has been around for quite some time, it remains relatively unknown to project-based companies. The problem is failing to recognize themselves as primarily a Project Business causes them to focus on the wrong aspect of their business.

According to Henrik Lerkenfeld, Vice President of Engineering at Adeaca, the problem is that most project-based companies will focus on the 5 percent of their business that makes them unique from other companies – like the construction or manufacturing parts. They should be focusing on the core part of their business, which is projects.

“Before you start to think of yourself as a mining contractor or a mechanical engineer, think about being a Project Business and what that means in regard to managing your core business,” said Lerkenfeld.

Instead, most project-based companies focus on the intricacies of being a construction or engineering firm, without recognizing that 80 to 90 percent of what they do is managing projects. Take care of that part of your business first and you will see the most productivity gains.

However, this approach doesn’t mean focusing on just project management, or project financials as separate silos. It means focusing on projects as your business. That means looking at these various aspects of your projects and your business together as one comprehensive whole rather than different parts that you try to optimize separately.

As a result of the normal unintegrated thinking, oftentimes, executives and managers do not know the expected outcomes of a project or set of projects until after they are complete when the final numbers come in. This lack of insight is a direct result of not having the fundamentals of your Project Business processes in order. If everything worked together in real time, as other macro-industries have achieved, these executives would always know the state of all projects.

Imagine a retail business like Kroger or Wal-Mart operating without knowing the inventory on their shelves on a daily, even minute-by-minute basis. That would be unacceptable. However, that is essentially how Project Businesses have operated for the last 30 years.

To improve productivity in any project-based company, it’s critical to first identify as a Project Business. Take care of the 80 to 90 percent first. Doing so allows you to focus on improving the majority of your business processes and identify the best systems and solutions for that purpose, giving you the largest efficiency gains possible and setting your company up for success in the future.

Download the Project Business Automation Blueprint to learn more about creating a comprehensive business system for your Project Business.