Industrial Marketing Management 36 (2007) 173 – 182
Tying the pieces together: A normative framework for integrating sales and project operations☆ Marjorie J. Cooper a,⁎, Charlene Spoede Budd b,1 a b
Hankamer School of Business, Baylor University, One Bear Place, #98007, Waco, TX 76798-8007, USA Hankamer School of Business, Baylor University, One Bear Place #98002, Waco, TX 76798-8002, USA Received 27 May 2005; received in revised form 2 December 2005; accepted 13 March 2006 Available online 20 October 2006
Abstract Synchronizing sales efforts with project operations, such that (1) there is a steady flow of work that can be completed in a non-chaotic project environment, (2) resources maintain high utilization, and (3) desired deliverables reach customers within the promised lead-time, is extremely difficult. This paper proposes a normative approach to uniting the sales process with project operations capacity by coordinating movement of potential customers through the sales funnel with the company's internal project capacity. It also addresses contingencies with respect to company throughput as a result of changes in managing the market, the sales funnel, and project operations, while taking into consideration variation in scheduling as well as in managing project task and duration uncertainty. © 2006 Elsevier Inc. All rights reserved. Keywords: Sales funnel; Multi-project management; Integration; Synchronization; Uncertainty; Buffers
1. Introduction Organizations are becoming increasingly sensitive to the necessity for integrating across business functions in order to more effectively meet the demands of the marketplace. Calls for functional integration have been voiced with respect to marketing and production/operations (Hsu & Chen, 2004; O'Leary-Kelly & Flores, 2002; Shapiro, 1977), marketing and engineering (Shaw, Shaw & Enke, 2003) marketing and R&D (Maltz, Souder & Kumar, 2001) and marketing and logistics (Mollenkopf, Gibson & Ozanne, 2000). Wind (2005, p. 864) calls for “... a broader, multidisciplinary approach to marketing challenges” and (p. 866) for “managers who have functional depth and broader perspectives.” In order to make decisions that enhance a business's overall effectiveness, it is necessary to ☆ We are grateful to three anonymous reviewers for their constructive comments and suggestions. We also wish to acknowledge the editors' helpful direction that assisted us in improving the paper. ⁎ Corresponding author. Tel.: +1 254 710 4951; fax: +1 254 710 1068. E-mail addresses:
[email protected] (M.J. Cooper),
[email protected] (C.S. Budd). 1 Tel.: +1 254 710 4763.
0019-8501/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.indmarman.2006.03.005
understand the drivers of cross-functional disconnects (Shapiro, 1977) and find resolutions that allocate and manage resources for the greatest positive impact (Wind, 2005). Pinto and Covin (1992) voiced a similar concern with respect to integrating project selling into the scope of project management. More recently, Cova and Salle (2005) have reiterated the importance of finding convergence points for project marketing and project management so that the two functions can successfully merge. The strategic ideal would be a seamless presentation to the customer of promised benefits coupled with flawless execution, or the integration of sales and operations (Soler & Tanguy, 1998). As applied to businesses focused on successfully marketing projects, the union of project sales and project operations would seem to be a necessity to achieve more continuity and predictability in the process, thus achieving better control (Slatter, 1990). It would, therefore, be important to explore a normative framework for managing the entire sales process (from lead generation to closing the sale) such that the discrepancies with respect to the supply of customer projects and the scheduling and completion of those projects for customers (project operations) can be successfully eliminated (Piercy & Lane, 2003).
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2. The problem Projects as products are distinguished from the internal projects prevalent in nearly every organization by being actively marketed to the organization's external customers (Skaates & Tikkanen, 2003) and by representing the primary source of revenue for the company. Examples include construction, audits, advertising campaigns, shipbuilding, military weapons systems, consulting, and software development. Projects are also distinguished from other types of products by their larger scope and complexity (Meredith & Mantel, 2003), the uniqueness and customization of each individual project tailored to customer specifications (Project Management Institute, 2004), and a relatively longer term selling process which includes unique steps (Cova & Salle, 2005), such as responding to invitations to tender and the tendering of bids (Cova & Holstius, 1993). In terms of strictly satisfying customer expectations regarding the project itself, the critical success factors include (1) stability – the vendor is able to minimize variability and disruption in the project schedule (Swartz, 1999); (2) timeliness – the project is delivered by the deadline date set by the customer (Gardiner & Stewart, 2000; Wright, 1997); (3) full scope – the vendor delivers the project in its entirety without any missing components or benefits (Gardiner & Stewart, 2000); and (4) within budget – the project is delivered without cost overruns (Gardiner & Stewart, 2000; Wright, 1997). Although these criteria are well-known in project management research and practice, research also shows that when “products” are manufactured to order, the internal relationship between sales and production is important to the
customer (Parente, Pegels & Suresh, 2002). Analogously, in the marketing of projects, it would appear necessary to focus not only on a company's external marketing efforts and customer management practices but also on the integration of those efforts with the company's internal project production capabilities. Yet an inevitable tension exists in a multi-project environment – as it does between many sales and operations functions – between the need to apply company resources to deliver promises and fulfill contractual obligations with respect to the project itself and the need for the company to ensure its revenue stream by continually supplying the pipeline with additional business in the form of project contracts (Slatter, 1990). The tension lies in the fact that when a bid is won by the vendor, the contract is signed, and contract deadlines go into effect, the customer expects the vendor to immediately begin work on the project and the vendor is anxious to do so. However, diverting necessary resources from existing projects in order to work on new projects can jeopardize project schedules (Herroelen & Leus, 2004b), thus delaying current projects with the result that they may be late, incomplete upon delivery, and/or have cost overruns. Companies are then caught in the dilemma of whether to create a positive impression with new-project customers by an immediate show of commitment or to ensure the satisfaction of current customers by focusing on the completion of currently scheduled projects. The resulting compromise, which often drives resources to multi-task between projects, has been shown to generate a multitude of negative consequences (Just, Newman, Keller, McEleney, & Carpenter, 2004; Rubinstein, Meyer & Evans, 2001). The worst outcome is that existing projects are often delayed or compromised, and contingent revenues may be
Fig. 1. Project marketing cycle.
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postponed or even forfeited (Vanhoucke, Demeulemeester & Herroelen, 2003). To manage the sales process such that the company has all the work it needs but avoids contracting for more work than it can deliver satisfactorily, the sales and project operations functions must be carefully integrated. That is, the sales functions must present finalized project contracts to the organization in sufficient quantity to avoid starving project resources for work and at the same time avoid overloading those same resources such that schedules are disrupted and current project success becomes problematic. The purpose, therefore, of this paper is to address several key issues that must be resolved in order to successfully tie the rate of “won” contracts to resource availability in a multi-project environment. First, we propose a model that links the sales process to project operations in a multi-project environment. Second, we articulate the contingency relationship between project operations and sales. Third, we explicate the concept of right-sizing the market and the role a right-sized market plays in integrating customer production with project production. Fourth, we discuss a key prerequisite for managing the variability in such a system: that of tying the pace of the lead, prospect, and customer closing process – the sales funnel – to the capacity and availability of the critical project resource. And finally, we offer limitations and recommendations for the implementation of this integrated activity flow. 3. Overview of linking the sales process to project operations Fig. 1 shows a proposed model of the sales process linked to a multi-project production environment. The overall purpose of the model is to represent a flow-management approach to the project sales/project operations interface, illustrating the interdependencies between the sequential stages of filling the projects pipeline and the execution of projects already in the pipeline. Each subsequent stage in the model is contingent upon the successful execution of the previous stage, just as is the case in a continuous-flow production environment. Essentially, sales produces increasingly well-qualified and committed customer prospects from stage to subsequent stage in the sales funnel, while project operations are responsible for fulfilling customer expectations with respect to project success criteria, setting up the company for repeat business, and enhanced performance reputation. With the addition of follow-up marketing efforts at the end of the project, the model portrays in some sense a cycle of successfully completed projects, leading to customer satisfaction, and thus to repeat business. This process of narrowing the sales focus by allowing only the most advantageous opportunities to pass through the gates of successive stages from the right-size market to the bidding pool, subsequently to the group of contracted projects at the end of the sales funnel, and finally to project execution and followup corresponds loosely with the project marketing cycle identified by Cova and Holstius (1993). A modified version is incorporated along the bottom of Fig. 1 to show roughly the correlation of the sales funnel and project operations processes
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with the project marketing cycle. For convenience, henceforth we too refer to the entire process represented in Fig. 1 as the “project marketing cycle.” 4. The contingency of successful project management The basic premise in forecasting generally has been that operations, including projects, are scheduled according to demand estimates arrived at by various forecasting methods (cf. Mentzer, Flint & Kent, 1999). However, the recognition that uncertainty lies at the heart of project planning and execution has induced a number of research efforts in the field of project operations under uncertainty (cf. Budd & Cooper, 2005; Herroelen & Leus, 2004a; Leach, 1999). Many of these efforts represent notable improvements in project stability (Herroelen & Leus, 2004a). Consequently, the premise of this article is that the rate at which sales generation takes place, especially the number of closed contracts, should actually be tied to the rate of project production. We, in fact, propose that businesses can more easily manage variability and uncertainty internally than externally and, consequently, that uncertainty control be focused first in project operating processes and secondarily in the marketplace. In short, we posit that because the rate of project completions necessarily dictates the throughput of the firm, the rate of closing sales should be subordinate to operations rather than vice versa, which is currently the norm for most forecasting models (Dalrymple, 1987). For these reasons, successful integration of the sales funnel and project operations is contingent upon the use of best practices in project management. Vendors who consistently turn in poor project performance usually pay the price in terms of sullied reputation and lack of customer referrals, causing impairment in achieving sales objectives. Equally, coordination between sales and project operations requires stability with respect to commitments and predictability when confronted with variances in project task completion (Soler & Tanguy, 1998). Best practices for project management include identification of the critical sequences in the project (Wiest, 1964; Woodworth & Shanahan, 1988) and robust project scheduling that includes allowance for resource constraints (Herroelen & Leus, 2004b); project buffering that takes into account statistical dependence between activities caused by estimation bias (Leach, 2003), especially in larger projects (Trietsch, 2005); and mechanisms for addressing the gaps between project planning and execution (Hällgren & Maaninen-Olsson, 2005), such as changing customer needs (Hellström & Wikström, 2005) and requirements for new capabilities (Brady, Davies & Gann, 2005). Additionally, staggered start times in a multiproject environment are essential (Cohen, Mandelbaum & Shtub, 2004). 5. Synchronizing project sales and project operations The net result of the need to coordinate the organization's flow system is the imperative to integrate cross-functionally the sales process with project operations and to tie the size of the
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market – given the company's experience with some minimumrequired conversions at each stage in the sales funnel – to the factor that controls the speed at which projects can be entered into the system, implemented, and completed. For the purpose of this discussion, we have designated this factor the “critical project factor” or CPF, as shown at the end of the sales funnel in Fig. 1. Tying project operations to the rate of closing sales is an interesting conceptual contribution toward understanding the relationship between project sales and project operations. The CPF represents the pacing (scarce) resource in the resource-constrained project scheduling problem (Herroelen & Leus, 2001), analogous to the bottleneck resource in a production environment. Thus, by definition, both the rate of project completions as well as the system's overall project capacity is determined by the CPF. Further, it can be demonstrated that profitability is a function of the management of the CPF (or bottleneck). To decide among projects, companies should look at profit-per-unit of CPF time: profit-per-day, perweek, or per-month, depending on the duration of the type of projects a company manages. The most profitable project is the one that produces the highest profit per unit of CPF time. Companies may also elect to factor in uncertainty with respect to potential projects by weighting profit-per-unit of CPF time according to a probability estimate assigned to the likelihood of winning a project contract. Subordinate weighting considerations might include project completion risk, quantity and quality of likely future sales, etc. Resource-constrained project scheduling problems, frequent in multi-project environments, occur whenever multiple projects require the use of a single or limited number of resources at the same time, such that one or more projects are necessarily delayed because of conflicting scheduling on the required resource. Although it may not be possible to solve the problem to optimality (Herroelen, Leus & Demeulemeester, 2002), the possibility of achieving significant reduction (e.g., greater than 40%) in project durations by tying project scheduling to the availability of the CPF has been clearly shown (Budd & Cooper, 2005). Thus, we argue that multi-project companies must (1) be able to approximate minimum required populations for each stage in the sales funnel, (2) tie market size – and, by implication, the size of the sales team – to the capacity of the CPF, and (3) create buffers both in the sales funnel and in project operations to absorb variation inherent in the project marketing cycle.
6.1. Sales funnel management
6. The sales funnel
Although the sales funnel concept is rarely mentioned in academic literature, it is well known in the business world (cf. Blankenhorn, 2000; Maddox, 2005; Moraillon, 2003). According to Roff-Marsh (2004) and as illustrated by the sales funnel itself, companies should treat the sales process like a production process, a series of tightly coordinated activities that deftly convert raw materials (i.e. leads) into finished goods (i.e. closed sales). Rolf-Marsh further recommends that companies with repetitive sales processes (including those involving multimillion dollar sales), use support personnel to do lead screening, prospect qualifying, and appointment scheduling in order to maximize salespeople's selling time and focus effort on the activities that directly impact sales. Correspondingly, Hodgdon (2004) emphasizes the importance of higher-than-average customer-contact instances to further increase selling effectiveness. This division-of-labor approach is as widely applicable to managing the sales process as it is for managing production. In sales, the constraint on productivity is the amount of time actually devoted to direct customer contact; companies benefit from increasing the amount of time available for salespeople to interact with customers. The exception would be the case of one-of-a-kind transactions, such as a founder selling his or her company. Companies should and often do track the probability of a closure or “win” ratio at each stage of narrowing the pool from many who have a low likelihood of becoming customers at the beginning of the funnel to those who actually do become customers at the end of the funnel (cf. Lukes & Stanley, 2004; Maddox, 2005; Sewall, 1976). These conversion or “win” ratios should be viewed as dynamic, constantly improving as (1) best project management practices result in more customer satisfaction, (2) division-of-labor specialists in each stage of the sales funnel gain experience and understanding of their markets, and (3) internal synchronization of project operations and closed contracts improves. At the outset, however, without the benefit of numerous data points, statistical probabilities may not be feasible. Some companies begin with average conversion ratios from their industry and refine the process according to their own experience (Sewall, 1976). Others introduce a monitoring system that helps them get a clearer read on their current situation (Lukes & Stanley, 2004; Robertson, 2005). Still others may use the following approach as one possible starting position:
The sales funnel (Dalrymple, Cron & DeCarlo, 2004) illustrates the sequential narrowing of a field of possible customers from unqualified opportunities (leads) – the largest pool – to qualified opportunities (suspects) to the best few (prospects) to, by implication, closed customers – the smallest pool. However, in the context of project sales, it must be recognized that traditional “leads,” “prospects,” and “customers” represent not individuals per se, but rather the milieu, that network of business and non-business participants who have interest and influence on the awarding of the project (Cova, Mazet & Salle, 1996).
1. For determining the lead pool, companies could use the Sales Call Allocation Grid (LaForge, Young & Hamm, 1983), which uses two levels of two dimensions – account opportunity and strength of position – to categorize leads with respect to high or low attractiveness to the seller. Recognizing that mathematical representations of the relationship between various stages in the sales funnel are difficult to determine, LaForge et al. (1983), substituted a more qualitative approach. The account opportunity includes the account's need and ability to purchase, while the strength of position dimension examines the strength of the seller's
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position with the account, essentially a relationship management assessment (Skaates, Tikkanen & Lindblom, 2002). 2. For creating the Qualified Prospects Pool, companies should select those customers for which the seller can most clearly demonstrate operating results. Empirical evidence shows that the ease and clarity with which a seller can demonstrate operating results for the client directly impacts the reduction of the sales cycle (Gavirneni, Morrice & Mullarkey, 2004), which, in turn, reduces costs for the seller and demonstrates value to the buyer. 3. For deciding to participate in the Bidding Pool (often at the discretion of the buyer, not the seller), profitability should be the primary criterion. Other criteria may be incorporated at the seller's discretion. For example, a company may want to take a small project to get its foot in the door with an important client. It may be useful to accept certain projects – especially if slack time is available – that offer positive community visibility or that receive a great deal of publicity. During slack time, a company may wish to do projects that are of interest to valuable employees whose expertise the company wishes to retain or projects that allow the company to develop new expertise attractive to clients in high-growth market segments.
actors in the milieu. In other cases, project vendors may become actively involved in constructing the competitive situation, influencing such factors as bid specifications and criteria for bonuses and penalties. Cova and Hoskins (1997) suggest that a combination of these two approaches may constitute the best competitive strategy for the project vendor, particularly in terms of helping to reduce investment in pursuing remote “opportunities,” that, in some cases, may extend to speculative proposals for customers who have not yet clearly defined their needs. Besides responding to technical and commercial requirements, the Bidding Pool stage requires sensitivity to the “political” component of the offer (Cova & Hoskins, 1997; Lemaire, 1996). This means direct and indirect relationships between the bodies financing and warranting or approving the reputation and/or work of the parties involved (including affected governmental bodies) and the customer must be considered prior to major work preparing the bid. Due to required negotiations, networks in the milieu are as important in this phase as in earlier stages. The invitation to bid will include required project deliverables, along with some indication of price the customer is willing to pay. From this information, a detailed bid may be prepared dealing with four issues:
One of the key applications of the sales funnel is that over time and with experience companies become aware of the typical number and types of contacts required at each stage to move toward a specified goal of “X” number of “closed” customers (Tanner & Loe, 1997). Moreover, at each stage in the sales funnel, companies can learn to undertake specific activities and behaviors that have the most impact on the value of their resource investments (Bernene, 2004, Lukes & Stanley, 2004), thus further streamlining the process. Coordinating the number of closed contracts in the Contracted and Scheduled Projects Pool with project resource availability is important. As previously mentioned, the number of projects under contract at a given time must be strictly controlled if the company is to avoid disruptions of current projects and the ensuing customer dissatisfaction and project performance penalties as well as the opposite problem of an undesirable dearth of project work.
(1) the nature of the technical problem and how it is to be approached; (2) the plan for implementing the project once it has been accepted; (3) the plan for logistic support and administration of the project; and (4) a description of the group proposing to do the work, plus its past experience in similar work (Meredith & Mantel, 2003, p. 86).
6.2. Movement through the sales funnel Out of all the opportunities initially identified in a right-sized market segment, only some leads in the Right-size Lead Pool will prove to be legitimate immediate prospects. Use of the Sales Call Allocation Grid assists sellers in prioritizing the prospects that are generated from the Lead Pool and eliminating leads that have little conversion and/or profitability potential. The Qualified Prospects Pool includes both new customers and former customers identified in the right-sized market segment. Determination of which prospects to move forward in the sales funnel is made in this pool. In some cases, project marketing will involve taking a deterministic posture (Cova & Hoskins, 1997) where project firms anticipate and respond to project opportunities according to practices customary in their industry and/or laid down by the contracting entity or other
The end of the bidding pool occurs at the culmination of negotiations and obtaining a signed contract, losing the contract to a competitor, or abandoning the bidding process. Regardless of the outcome, the experiences of the project-selling firm should be fed back to colleagues involved in earlier stages of the sales funnel so modifications to the system may be considered (Skaates & Tikkanen, 2003). The Contracted and Scheduled Projects Pool represents work that has been contracted for but not yet begun. This stage is analogous to the gating stage in manufacturing, where the release of the raw materials controls the timing of the production line (Gross, 2005). Similarly, the beginning of the first scheduled task in the project schedule constitutes the release of the project into production, thus effectively determining the number of projects under management in the company at any one time (Leach, 1999). Just as the timing of the release of raw materials in concert with the pace of production is critical to managing production variability in a manufacturing facility (Michel, 2004), so the “release” of the project into “production” in coordination with resource capacity is critical to managing variability in a multi-project environment. However, for a company whose products are completed projects, the “storage” life of a signed contract usually is much
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Fig. 2. Determinants of a right-sized market segment.
shorter than the shelf life of a manufacturer's raw materials. Project customers expect to see progress on their projects relatively quickly, and they usually will have built into the contract progress reports and milestones that must be met to satisfy the conditions of the contract. Thus, it becomes even more imperative to design a flow-management control system for project management that controls the progress of potential customers through the sales funnel and allows for optimal scheduling and release of each project. Fig. 1 illustrates the sales funnel operating in a projectmarketing environment. The key feature, as will be explained shortly, is that the target number of customers – those with whom a project contract has been negotiated, closed, and signed – must be coordinated with the multi-project scheduling process in order to avoid over-promising in the contract-closing stage and under-delivering in the project implementation stage. 6.3. The right-sized market Although rarely discussed by academics, the practice of identifying and selecting a right-sized market is a crucial first step (Hodgdon, 2004) and a precursor to the sales funnel. Rightsizing the market means that the company can achieve dominance in that market and still leave business on the table. Dominance in a market gives a company the ability to cherrypick the most attractive projects in terms of (1) profit margins, (2) fit with the company's core competencies, and (3) other negotiable items, such as bonuses for early completion and penalties for late finishes or budget overruns (to dampen competitors' over-promises). Fig. 2 illustrates the key considerations in determining a right-sized market. Determination of the right-size market should be accomplished bi-directionally. That is, it must be focused outward to capture market opportunities and inward to synchronize company capacities and capabilities with market opportunities. Looking externally, a right-sized market is defined according to its long-term potential and estimated project spending. According to Hodgdon (2004) two criteria are necessary for right-sizing a market. First, a company intentionally selects a segment(s) where the company can gain at least a specified
minimum share of project spending within a reasonable time frame, say 25% of the market in 3 to 5 years. To achieve this objective, a company must successfully derive a trade-off between choosing a segment that has revenue potential large enough to meet goals yet still small enough to allow sales personnel the opportunity of higher-than-average contact with customer “prospects” (Hodgdon, 2004; LaForge et al., 1983), or the more broadly defined “milieu” (Cova et al., 1996). Defining a segment that is too large either spreads the company's resources too thin and dilutes its presence in the market or forces the company to accept an inferior position in that market segment. Defining a segment that is too small unnecessarily limits the company's potential revenue stream. Second, market selection also should be heavily influenced by an organization's ability to demonstrate to customers that their projects will result in operational benefit to the customer (Cova & Salle, 2005; Gavirneni et al., 2004; Shenhar, Dvir, Levy, & Maltz, 2001). Segmenting by results means that customer measures of problems are known by the seller and can be addressed by the seller's project solution (Anderson & Narus, 1998). Additionally, the demands of serving a right-sized market must be coordinated with the right-sized sales team assigned to a particular market segment. To maximize customer contact, three types of specialists have been identified for the sales process. They include (1) scanning specialists, who maintain social continuity with key actors connected to the customer and professional contact with customer themselves (Cova & Salle, 2005); (2) salespeople, who work with customers and other relevant parties to secure the option to bid (Cova et al., 1996); and (3) bid tender specialists, who collaborate with salespeople in screening projects, developing offers, and negotiating with customers (Cova, Ghauri & Salle, 2002). Finally, the right-sized market potential must be tied internally to the critical project factor (CPF) schedule in the project operations sector of the company. As will be explained in more detail below, productivity in a multi-project, resourceconstrained environment is inherently tied to the CPF, such that if the CPF (and sometimes other resources as well) become overloaded, project schedules will be compromised and the
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successful delivery of all projects in the organization will be in jeopardy (Budd & Cooper, 2005; Leach, 1999, 2003). One of the effects of a right-sized market is that a first step is taken in properly sizing the pool of leads/prospects from which potential customers move through each stage gate in the sales funnel. The objective is to qualify a minimum number of customer projects under contract in the Contracted and Scheduled Projects stage. As previously noted, it is not necessary for project marketers to develop precise conversion ratios for each stage in the sales funnel – only that the seller have a good estimate of the minimum number of leads, prospects, and bids necessary to result in a sufficient number of closed contracts. 7. Scheduling the critical project factor Key to success in a multi-project company is the ability to control the flow of customers (e.g., signed project contracts) into the actual project operations phase. Too many projects will overload the system, causing disruptions in scheduling and completion. Too few projects will compromise the company's revenue and income streams. Consequently, the management of variation in a process or flow environment, such as the project marketing cycle, becomes critical. 7.1. The impact of variation Deming (1986) included “an understanding of variation” as one of his four points of profound knowledge. Variation, as expressed in Fig. 1, is uncertainties in task performance durations as well as in statistical fluctuations involving dependent events across the entire project marketing cycle, including the project operations phase of the cycle. Specifically, Deming identified two types of variation, common and special, that must be understood and managed in order to achieve production stability, which leads to high-quality customer service. Common cause variation results from the apparently random shifts in outcomes from one day to the next or from one task to the next. Common cause variation is also termed system variation because it is inherent in the system and cannot be removed without significant change in the system itself. Special cause variation, which Deming's mentor, Shewhart, termed “assignable causes” (Shewhart, 1986, p. 30; Deming, 1986, p. 310), is spawned by factors that sporadically disrupt the system but which leave identifiable patterns for which causes can be attributed, such as untrained employees. Included under special cause variation is tampering (Deming, 1993) and structural variation (Joiner & Gaudard, 1990). Tampering is additional variation that results from superficial adjustments to the system intended to remove common cause variation. Structural variation is systematic changes linked to such phenomena as seasonal buying patterns or economic cycles. Special cause variation can be addressed by careful analysis of sales, marketing, and operating data. Finding out what special cause was present during an event – say, a lapse in sales volume – offers insight into how to plan for and address those events in the future. Similarly, knowledge of one's operating
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environment generally answers questions pertaining to structural variation and allows management to make appropriate adjustments. For example, firms often take seasonal adjustments into account when preparing their sales forecasts (Dalrymple, 1987). Problems arise, however, when companies try to manage common cause variation without understanding how to do so (tampering). These attempts generally result in a multitude of unintended consequences, since the actions taken typically address symptoms rather than underlying root causes. It must be recognized that tampering usually makes things worse – not better – although tampering may be the most common management tactic in both selling (Tanner & Loe, 1997) and production (Deming, 1993). The solution to handling variability and uncertainty, well-documented in operations research and practice (e.g., Project Management Institute, 2004; Trietsch, 2005; Winch & Kelsey, 2005), is now applied to the entire project marketing cycle. 7.2. The CPF and project operations Besides leveling projects so that resources are not scheduled to work on more than one task at a time, managing duration variation is one of the latest project management developments. Controlling project duration variation occurs in scheduling and executing projects in the last stage of the sales funnel. This can be accomplished through the series of steps described below. The first step is to identify or designate a strategic resource (which may be a resource pool) that is used in most projects. The CPF, if leveled across all projects such that it is not overscheduled, delimits the entire system's capacity. The primary purpose of identifying and scheduling project starts keyed to this strategic resource is to stagger the entry of projects into the system and enable proper buffering to control multi-project operations. The second step is to make sure the prescribed schedule of the CPF is protected in order to avoid disrupting managementestablished project priorities. Any disruptions in the CPF's schedule cause a cascade of disruptions in a company's ability to deliver projects as promised. Because the CPFs schedule basically determines when project delivery may be promised, care must be taken in determining and adhering to its schedule. Task duration uncertainty means that sometimes this critical resource may finish early (desirable because work may be speeded up on the current and subsequent projects) and sometimes it may finish late (undesirable because the current and subsequent projects may be delayed). Therefore, extra time beyond the CPF's expected task duration (buffers) must be added between projects to insure a stable schedule. In this way work can proceed steadily without overloading or burning out the CPF. The third step is to make sure preliminary work on a project is completed before the scheduled arrival of the CPF, because delaying the CPF from its scheduled start is equivalent to increasing its variability. Thus, earlier tasks (or paths) must have sufficient safety capacity built into their schedules so they do not delay the start of CPF work. Individual project scheduling, therefore, is derived with reference to the CPF. Fig. 3 illustrates the role of the CPF in scheduling staggered project starts and the
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Fig. 3. Example of project scheduling. (Different patterns represent different resources; solid grey line shows the critical chain of each project.)
role of buffers in absorbing variability. But more than project scheduling is involved: the right-sized market segment must be defined with reference to capacity of the CPF, given the estimated diminishing number of prospects as they pass through the sales funnel, so that project contracts are finalized at appropriate intervals. This approach of intentionally delaying the start of some projects to account for the availability of the CPF is in stark contrast to the usual practice of starting all projects as soon as funding is approved, regardless of resource availability (Anavi-Isakow & Golany, 2003). To maintain CPF productivity so that promised delivery dates are met, a buffer of Scheduled Projects must be supported. That is, when existing projects are nearing completion and the CPF's schedule is beginning to show available capacity, additional projects – subject to the same constrained scheduling priorities – can be pulled into production and begun. Because contracts that have been signed carry obligations, these projects should not be finalized and entered into the Scheduled Projects stage until an acceptable start date can be forecasted based on current project scheduling – specifically the CPF's schedule and project priorities. To make such delays feasible, the entire sales funnel must be managed so as to avoid long lag times for customers. Additional projects can be turned down at any stage before finalizing the contract to avoid exceeding the size of the Scheduled Projects buffer. However, companies should intentionally minimize situations where such refusals occur near the end of the negotiating phase, since late customer eliminations may engender ill will against the vendor. This again points up the need to choose a right-sized market segment that can be managed with respect to the CPF's capacity and project delivery promises. The fourth step is to increase the capacity of the CPF (and other resources if their support capability is impaired) when the
organization desires to enter a larger or an additional market segment. Increasing capacity may require buying more equipment, hiring more people with the CPF's capabilities, hiring additional supporting resources, or authorizing overtime for existing resources. Also, if the CPF's capacity is increased, commensurate increases must occur within the sales team and potential customers entering the sales funnel or the company will find the CPF has excess capacity. However, companies are more profitable when excess capacity (demand) resides in the number of customers they attract rather than within their own operations, and this is the situation to which we aspire by rightsizing the market. Several additional measures must be taken to maximize the output of projects in a multi-project situation. First, individual projects must be leveled. That is, resources may not be scheduled to perform more than one task on a project at the same time. (Only the CPF is leveled across all projects.) Leveling now is recognized as a basic first step in project management (Project Management Institute, 2004). Second, for each project the longest series of dependent events (task and resource dependencies) must be identified. This series is referred to as the “critical chain” of events (Newbold, 1998). Any delays on the critical chain will, by definition, delay the completion of a project. Therefore, as shown in Fig. 3, schedules are constructed such that delays on the critical chain are appropriately buffered with safety time at the end of the project. Further, project events not a part of the critical chain must have scheduled time buffers at the point where they join the critical chain (Meredith & Mantel, 2003; Newbold, 1998). The critical project factor is the unifying force across all projects, determining when projects are initiated and, with buffered schedules, when they will be completed. This
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“buffering” means that duration variability in one project will not be translated into delays in other projects, which, if permitted, might jeopardize stability across the system and result in rapid deterioration of on-time, within-budget, and fullscope probabilities for all projects, as is so often observed in practice (Morris & Hough, 1987). 8. Conclusions and limitations In this paper we present a proposed model of project marketing that offers several unique advantages. First, it recognizes the project marketing implications of a company's consistently producing projects that meet the standards of stability, timeliness, budget, and scope, characteristics that have high importance for project buyers. Second, the model takes into account the inherently cross-functional nature of successful project marketing by incorporating both the sales funnel and project operations into the entire project marketing cycle. Third, we present an outline of the steps necessary to synchronize the sales funnel with project scheduling and implementation in a way that enhances the stability of the system, thereby minimizing common cause variation many companies find so difficult to manage and providing the opportunity to identify and control special cause variation. Fourth, we elaborate on the process of right-sizing the market segment being served, offering a means by which right-sizing as a concept can be tied to meaningful performance metrics by the company. There are some limitations associated with the innovative model presented in this paper. If companies are to benefit from merging the sales funnel and project operations, they not only must conduct a thorough analysis of the market segment(s) they plan to enter, but they must also employ environmental scanning capabilities on a systematic and ongoing basis. As market segments change, so will the characteristics of the sales funnel, including the customer demand required in each stage. Thus, it is requisite that market information be both current and accurate. The system we have described also requires that the traditional chaotic project operations environment be controlled and that inherent uncertainty is managed with appropriatelysized demand buffers for the sales funnel and time buffers for projects, thus creating operations stability in the system (Swartz, 1998). Without operational stability, companies have little hope of achieving stability in their overall project marketing cycle. Further, we have not addressed the behavioral changes required to support adoption of the model we have suggested. Extensive behavioral and related performance evaluation issues inherent in innovation adoption represent fertile areas for future research. References Anavi-Isakow, S., & Golany, B. (2003). Managing multi-project environments through constant work-in-process. International Journal of Project Management, 21(1), 9−18. Anderson, J. C., & Narus, J. A. (1998). Business marketing: Understand what customers value. Harvard Business Review, 76(6), 53−61. Bernene, C. (2004). Jump start for sales. Best's Review, 105(4), 77−80. Blankenhorn, D. (2000). E-mail use shifts from prospects to closures. Advertising Age's Business Marketing, 85(1), 29−30.
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Marjorie J. Cooper, Professor of Marketing, Baylor University. Her research interests include facilitating firm strategy through cross-functional integration, project management, and promotion management. Her work has been published (a.k.a. Caballero) in the Journal of Marketing, Journal of Advertising, Journal of Advertising Research, Journal of the Academy of Marketing Science, Journal of Professional Selling and Sales Management, Journal of Small Business Management, Business Horizons, and others.
Charlene Spoede Budd, Professor Emerita, Baylor University, has current research interests in project management and performance measurement. She is a Project Management Professional and has published in Strategic Finance, Human Systems Management Journal and Journal of Promotion Management.
