“How are you doing?” I asked one of my American colleagues from the IT industry recently. I hadn’t seen her in a year.
“We’re working in a ‘foreclosure economy’,” she replied.
She was talking about the challenging economic times that has hit much of the US and how difficult it can make technology sales but it made me think about how the project management industry responds in a recession vs. a boom economy. I’ve been in the Enterprise Project Management (EPM) software business now since the early 80s so I’ve seen a couple of boom and bust cycles come and go. It’s very interesting to see how EPM can sell in both good times and bad times.
In good times, EPM is attractive to companies who are doing rapid growth. We can look back to the very first large scale project management systems during the cold war and see how different country’s defense department’s multi-billion dollar budgets fueled the desire to innovate and manufacture faster in the defense sector. In the 70’s during the last “oil crisis” we’d have typically thought of the economy in a terrible state. Yet, project management at the enterprise level flourished with the discovery of oil in the North Sea. Artemis, one of the first project management tools made for a mini-computer owed a lot of its growth to companies drilling for, delivering and refining oil.
The challenging economy of the early 80’s saw the explosion of use of PC-based project tools. Suddenly, tools that had only been available at tremendously high cost were being adopted by organizations trying to be the most efficient possible.
The tech boom of the late 90’s saw project management tools used at a corporate level to try to overcome a tremendous shortage in the tech world and to organize the billions being spent by venture capital firms for whom time-to-market was the critical success factor. In the “tech-bust” of the first half of this decade, project management sales continued to grow at a furious pace as technical organizations tried to survive by being the most efficient possible.
So, how does a ‘Foreclosure economy’, affect the EPM industry?
First of all, we have to think about what happens in a challenged economy. There are a couple of things to think about.
First, it’s common that if one part of the economy is challenged, another is booming. I’m in Houston, Texas as I write this column and the economy here is heavily oriented around the oil industry. Needless to say with $150/barrel oil, the economy is doing rather nicely overall in Texas. In Canada, we see some hard-hit sectors in the manufacturing sector yet the Alberta oil patch is seeing record income. So, one of the ways the EPM and the EPM systems industry can react to this economy is to follow the money and it does. There are many deployments of project management tools being done in the oil industry and its offshoots right now and a growth business at the moment is to be able to offer a turnkey project management environment for organizations which cannot afford the time to train themselves in the methodology or the tools yet want the benefits. That’s low-hanging fruit for the EPM and EPM software industry.
Next, where the economy is doing poorly, organizations will attempt a couple of things to survive. Profit is a simple algorithm: revenue – costs = profit and companies need to look at both sides of the equation to see where they can get the best situation possible for themselves. Ultimately it’s about being the most efficient possible.
The first and most obvious place a company can improve profits is by cutting costs. Project Management systems can play a huge part in this. Our own TimeControl timesheet business here at HMS has seen a number of companies who are implementing enterprise timesheets for activity-based-costing as a way to identify what employees are working on. There are a number of questions an enterprise timesheet system can answer:
- Ø Are employees spending too much time in unproductive meetings?
- Ø Are they spending too much time on corporate reports?
- Ø What is the ratio of project-productive vs. non-project-unproductive time?
- Ø Where can we use our own employees instead of contractors for work?
- Ø What projects are the most costly?
Some organizations can realize huge savings by redirecting their staff to more productive work.
Increasing revenue through better competition
It’s an often-said truism that ‘no company ever cost-cut its way to growth’. If a company wants to improve its bottom line profits, it needs to work not only on the cost side but also the revenue side. But, in a challenged economy isn’t there often less revenue to go around? Indeed. So, if you can’t grow the size of the pie, the only way to grow your revenue is to have a bigger slice. That means being measurably more competitive. EPM is often used to help companies become more competitive. With good project management practices and the systems that support them, an organization can improve on its estimates or bids through a reiterative planning process. It can bid lower by having more efficient processes and it can deliver more projects by optimizing its throughput. Project Management is, in the end, about being more efficient and in a challenged economy, the most efficient survives, the least efficient does not.
There are often benefits which are government sponsored and only available if you are applying good business practices like using an enterprise timesheet system or enterprise project management. Research and Development Tax Credits are a good example. These programs insist that the companies who apply have a managed project plan, that hours are tracked against the plan and that accounting balances the payroll, the project plan, the timesheets and the tax return to all match. That takes enterprise systems for project management and project-based timesheets.
Improving Portfolio Selection
I remember being at a large aerospace manufacturer years ago and asking why their commitment to EPM was so low. “We are the only source for this product,” said one arrogant staff member. “The clients will darned well wait until we’re ready to deliver no matter how long that takes.” In an economy that’s booming so hard you don’t need to be efficient, an organization will feel comfortable accepting all kinds of business even if it is disruptive to other clients, if it is marginally profitable or if it is outside their core competency. That’s just not the case in a challenged economy. In a challenged economy, it’s critical to make sure you’re taking on the projects you can be most successful with. That means putting in the effort to identify the business drivers that make the business successful, creating metrics to measure the association of prospective projects against those drivers and deploying a process that ensures that project selection results in a mix of projects that are best for the organization. That’s portfolio selection in a nutshell and it’s perhaps no surprise that PPM or Project Porfolio Management and selection is one of the hottest concepts in our industry today. If you can choose the right projects, then the organization’s ability to deliver on projects more effectively is assured.
“It’s the economy stupid” was the phrase that Bill Clinton coined during his first successful presidential campaign. It’s no accident that this campaign slogan was revived just this week in American politics. In a challenging economy, those of us in the EPM business can be just as successful as during a boom economy if we keep our focus on making organizations as effective as possible.