Human resource management in project-based organization

Human Resource Management in Project-Based Organization:

Towards an Orthogonal Approach

Dr Laurent Bourgeon

ESSEC Business School

Email: [email protected]

Page 1 of 21 ANZAM 2009

Human Resource Management in Project-Based Organization:

Towards an Orthogonal Approach

ABSTRACT

How to appraise and reward project managers? How to manage the career development of the project

managers? These are some of the questions raised by the implementation of a project-based

organization. This paper shows how companies that have opted for project-based organization of their

new product development activity address these questions. Results from the empirical study

demonstrate that project-based organization can be associated with a particular staffing approach for

project teams aiming to promote a renewed diversity of the teams. It can also be linked to a specific

logic for career development of project personnel geared toward the rotation of functional managers

in projects. This specific way of staffing project teams and managing career development of project

managers tends towards, what is called in the paper, an orthogonal approach.

Keywords: Career Development, Human Resource Management, New Product Development

Projects, Project-Based Organization, Staffing Project Teams

INTRODUCTION

Evolution of the competitive environment has highlighted the ability of companies to develop new

products (products which not only seek to satisfy the needs of clients, but also bring them increased

value) both quickly and under good economic conditions as a key factor of competitiveness. In this

new business context, fast and cost-effective product development has become a crucial organizational

ability for a company’s performance and survival. The high-speed, fast-changing business

environment has increasingly challenged traditional organizational structures. In a context where the

changing environment results in accelerated development and where the launch of new products is an

important competitive issue, it becomes crucial to improve coordination and integration geared to

flexibility. Acceleration of product launches and increasing sophistication of their features put the

structuring of new product development projects into question.

The emergence of project-based organization as a way to organize a company’s new product

development activity raises questions about managing individuals involved in projects. Some of these

questions are: How should project teams be staffed? How should career development of the staff,

Page 2 of 21ANZAM 2009

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especially project managers, involved in the company’s projects be managed?

The present research identifies and describes the options developed by companies that have chosen

project-based organization for their new products development activity in this particular domain. First,

it presents the main characteristics of project-based organization. Then, it demonstrates, through the

results of the empirical study, that companies that have adopted project-based organization for their

new products development activity implement a specific staffing approach in a renewed diversity

perspective and a logic of career development favoring rotation of functional managers in the projects.

These results show the critical link between what this research calls “orthogonality” (a staffing

approach for projects guaranteeing rotation of functional actors in the projects and alternation of duties

carried out by project managers) and the implementation of a project-based organization.

THEORETICAL BACKGROUND

Various authors have described the characteristics of the new competitive environment (D'Aveni,

1994; Brown and Eisenhart, 1998). Others have shown how firms are responding to these new

challenges, focusing on innovation challenges and looking for more integration between various

functions in the new product development process through the implementation of less formal and

hierarchical organizational units (Cooper 1994; Miles and Snow 1994; Rothwell 1992).

Organizational Conditions for Improving Performance of New Product Development Projects

In project-based organization, part of a firm’s activity is carried out through temporary organizational

units, projects. Projects are nothing other than temporary processes. When a project’s goal (new

product development, for instance) has been reached, the temporary organizational unit in charge of

the process is dissolved and the project actors move on to new projects or move back to their original

functional department or their previous duties (DeFillippi 2002; DeFillippi and Arthur 1998; Hobday

2000).

Desire for better mastery of these multifunctional processes has been growing in recent years,

particularly in industries where product dimension is important and where new product launches


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represent major strategic stakes for the company (Midler 1995). As for the management of new

product development projects, the sequential process, which is made up of a succession of stages and

whose execution affects various functions, has gradually yielded to pluri-functional teams endowed

with autonomy and decision-making power. Simultaneous decision processes have replaced the points

or "gates" of control and decision where the transfer of information between specialists in various

functions takes place. The implementation of pluri-functional autonomous project-teams responds to

the need for decompartmentalizing activities in the process. This makes it possible to notably reduce

the weight of the indirect activities of administration and coordination, which may represent up to 50

% of the total time of the project (Rothwell 1992).

When needs for horizontal coordination override the benefit generated by specialization of functions

and of individuals, project-based organization progressively replaces the functional or matrix

structure. By supporting intensification in exchanges of information during the first stages of projects,

decompartmentalization of activities involved in the new product development process enables

simultaneous implementation of phases (simultaneous development), before being carried out in a

sequential way, and becomes a factor in reducing duration of the development process (Clark and

Fujitomo 1991). Beyond the reduction of time to market for new products, which remains the principal

concern of R&D activity (Gupta and Wilemon, 1996), companies must also control costs relative to

projects and take the value brought to the customer into account. Through the integration it implies,

project-based organization grants projects autonomy from functions and endows them with decision-

making power and direct responsibilities.

New Articulation Projects / Functional Departments

These new priorities are likely to call the established structures and the distribution of power within

the company into question. In a functional structure, functions are perceived as the main sources of

improvement in the company's performance. These functional boundaries clearly define territories,

and managers are evaluated upon results in their territories, regardless of their hierarchical level. If

such an organizational structure generates behaviors of defense of individual territories, which are


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sources of power in the organization, it also raises the question of how career development of actors

involved in the projects (especially project managers) takes place.

Within project-based organization, the value offered to the customer, who is not concerned by the

degree of participation of one or another actor but rather by the value of the total result, must be taken

into account. It is mainly co-operation between functional territories and the coherence of the actions

within them that generate value for the customer. Therefore, such a structure naturally generates

collective learning and synergies that usual territories of power into question. The value gathered by

the customer is more the result of the quality of integration obtained between activities than the sum of

the successes by successive functional areas of competence. In this context, how can the project

experience of individuals be valorized for their career development?

The quality of integration finds its source partly in the process of product development itself. It is the

project director’s role to manage available competences, to create the value desired through the best

possible integration and, finally, to support collective learning during the project. However, this

quality of integration also has requirements like the placement of high potential managers by the

various functional departments of the company. Thus, power in the organization is not simply

transferred from functional managers to project manager. Functional managers retain a dominating

role in capitalization and in the diffusion of knowledge within the company. However, the role of

project managers is also essential because there is no reason to believe that today’s problems can be

solved intelligently and systematically on the basis of functional departments’ knowledge, even if this

knowledge is inherited from an extremely recent past. The implementation of project-based

organization poses the question of the staffing approach for project teams privileged by the company.

The first hypothesis (H1) is, therefore:

Firms that have opted for project-based organization of their new product development

activity tend to implement staffing approaches for project-teams guaranteeing rotation of

functional actors through the projects.


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And the second hypothesis (H2) is:

Firms that have opted for project-based organization for their new product development

activity tend to implement career development logic for their project managers that guarantees

the alternation of duties.

METHODOLOGY

To test these research hypotheses, a survey was conducted with the heads of Research and

Development of 264 French industrial companies. A postal survey was conducted with the heads of

Research and Development of 264 French industrial companies, of which 93 were returned (Eighty-

one valid responses remained, representing an effective response rate of 35.5%).

The methodological choices -quantitative method- made the development of identification tools, for

the staffing approach and for project managers’ career development adopted by companies, necessary.

And a method for measuring the organizational structure of new product development activity was

derived from Larson and Gobeli’s research (1987).

Identification of Staffing Approach and Project Managers’ Career Development Adopted by

Companies

In a preliminary stage, interviews carried out with five R&D directors of European industrial

companies made it possible to point the three main approaches to staffing project teams.

Three types of approaches to staffing projects teams seem to prevail:

1. Renewing use of a team that has already proven itself;

2. Staffing a project team with members of the company who have already taken part in various

projects but have never had the occasion to work together on a project;

3. Staffing a project team with members of the company who have never had the occasion to work

together on a project and, for the majority of them, have never taken part in a project.


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On the other hand, an identification tool for the logic of career development for project managers that

was implemented by the firm was also highlighted during these interviews. Therefore, the career

development approach in place in the companies is identified by the position of origin (before the

project duty) and the position of destination (after the project duty) held by project managers. The

eight variables describing project managers’ career development are relative to project managers’

position of origin and position of destination in the company before and after the projects (i.e.

functional position, product manager position, production manager position, project manager

position).

Here, the proportion of project managers (expressed in %) in the company according to their position

of origin and destination is the indicator that makes it possible to understand how project managers’

career development was implemented by the company.

Identification of the Organizational Structure of New Product Development Projects

Larson and Gobeli (1985) and Clark and Wheelwright (1992) have successively proposed typologies

of organizational structures for new product development activity. The identification tool for the

organizational structure implemented by the companies in the sample group was developed on the

basis of their research.

The variables are:

• The project manager’s authority to complete the project,

• The project manager’s responsibility for completing the project,

• The functional managers’ authority over their specific segments of the project,

• The functional managers’ responsibility for their specific segments of the project,

• The autonomy of all functional personnel assigned to the project from their functional hierarchy.

Furthermore, two variables that take into account the organization of the new product development

projects were added:

• The dedication of project actors throughout the duration of the project (i.e. the assignment of

functional personnel to the project on a full-time basis), and

• The implementation of a project platform (i.e. specific location for the project).


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Data Analysis Method

A three-stage data analysis procedure was carried out (see Figure 1).

Figure 1


In the first stage, two factor analyses were used to reduce the number of variables characterizing two

phenomena (i.e., organizational structure of the new product development projects and career

development of project managers). Thus, the main dimensions (or factor axis) of each these two

phenomena were identified. In the second stage, two cluster analyses were carried out to identify and

assess the underlying group structure of the sample firms in relation to each “phenomenon”. Finally, in

the third stage, variance analyses (ANOVA) were carried out in order to explain group membership

(projects’ organizational structure) of the sample firms (dependent variable) by staffing approach

implemented by the firms (independent variable) in the first ANOVA, and by the logic of project

managers’ career development implemented (independent variable) in the second one.

RESULTS AND DISCUSSION

The results of the data processing are presented and analyzed according to the three successive phases

used in the data analysis method presented in appendix.

Characterization of Project-Based Organization

The first factor analysis carried out highlighted the main dimensions characterizing organization

according to the eight variables that make up the identification tool for organizational structure of new

product development projects (see Figure 1). The application of Kaiser’s criterion (eigenvalue >1) led

to the retention of the three first factors arising from the factor analysis. To facilitate the interpretation

of the five retained factors, a Varimax-type orthogonal rotation was carried out, aimed at maximizing

the correlation coefficients of the most correlated variables with these factors.

The first dimension (or factor) that characterizes project-based organization is the authority and

responsibility of the project director. In project-based organization, the project director alone has


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authority over the project (without sharing it with functional directors) and assumes all the

responsibility for completion of the project.

The second dimension of project-based organization is the specific organizational unity -both spatial

and temporal- granted to projects in the organizational space of the company. The spatial and temporal

unity of projects in the company is obtained through the setting up of project platforms and the

dedication of project actors for the duration of the projects.

Finally, in project-based organization, project actors depend solely, from a hierarchical point of view,

upon the project director and no longer upon the hierarchy of the functional department from which

they come. The hierarchical attachment of project actors to the project director confers a relative

autonomy upon the project vis-à-vis the structure of the company. The autonomy of project teams

constitutes the third dimension characterizing project-based organization. It is on the basis of sample

companies’ respective positions (factor scores) as to these three dimensions that the organizational

structure characterizing their new product development projects is highlighted in the second stage of

the data analysis (see Figure 2).

Figure 2

Dimensions of Project-Based Organization

(the main dimensions and the mean positions of the groups

Main Dimensions of the Logic of Career Development for Project Managers

The purpose of the second factor analysis is to highlight –among the eight variables (position of origin

and position of destination of the project managers) describing the career development path of the

project managers– the main dimensions underlying the HRM practices of this type in the companies.

The application of Kaiser’s criterion (eigenvalue >1) led to the retention of the three first factors

arising from the factor analysis. To facilitate the interpretation of the three retained factors, a Varimax-

type orthogonal rotation was carried out, aimed at maximizing the correlation coefficients of the most

correlated variables with these factors.

The first dimension characterizing the mode of career development for project managers is the

constitution of a corps of project management specialists within the company. Throughout their career


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in the company, these project specialists are put in charge of new product development projects led by

the firm. The two variables mainly constituting the first factor axis are the project management duties

as position of both origin and destination of the project managers. Thus, the first axis compares two

types of companies. The first type is composed of companies where the project managers have already

practiced this type of position and who will have to practice project management in their future career.

The second one is made up of companies in which the project managers performed other types of

duties (functional duties, product management, head of a manufacturing unit) before the project and

are intended, at the end of the project, to perform other types of duties than project management ones.

The first dimension characterizing the mode of career development of the project managers consists of

the constitution, within the company, of a corps of project management specialists who will be,

throughout their career in the company, put in charge of new product development projects led by the

firm.

The second dimension is embodied by alternation in the logic of career development for project

managers: project-product or project-function alternation modes. The variables playing a decisive role

in the constitution of the second factor axis are the functional duties as position of origin and

destination for the project managers, as well as the product management duties as position of origin

and destination. So, this second axis compares the companies in which the project managers alternate

project duties and product management position with the companies where the project managers

alternate project duties and functional management position. This axis embodies alternation in the

logic of career development of the project managers: project-product or project-function alternation

logic.

Finally, the third dimension characterizing the mode of career development for project managers is a

technical logic consisting of alternating new product development project duties and production

duties. The two variables mainly constituting the third factor axis are the head of a manufacturing unit

as both position of origin and destination for the project managers. This third factor axis compares the

companies in which the project managers alternate project duties and the head of a manufacturing unit

to the companies where the approach of the career development of project managers corresponds to

another mode. So, the third dimension characterizing the mode of career development of the project


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managers is a ‘technical’ logic consisting of alternating new product development project duties and

production duties.

The logic of the project managers’ career development in place in the sample companies was

highlighted on the basis of its respective position on these three dimensions (see Figure 3).

Figure 3

Project Managers' Career Development

(main dimensions and the mean positions of the groups)

The cluster analysis was carried out to classify the companies according to their logic of career

development for project managers from their respective positions on each dimension characterizing

these HRM practices. Classification generated four homogeneous groups of companies.

Logic of Career Development for Project Managers in Project-Based Organization: Privileging

Alternation of the Project Managers’ Duties

As for career development for project managers (cf. Table 1), the first logic aims at constituting a

corps of project specialists in the company and also includes the technical logic prioritizing a

production-project rotation. The second logic consists of a “pure” alternation: functional duty / project

management rotation or product-project management rotation.

Table 1

Career Development and Organizational Structure

The variance analysis shows that the logic of project managers’ career development seems to be linked

to the organizational structure implemented. Therefore, it is significant that companies that have

adopted a project-based organization are privileging alternation of duties as the logic of career

development for their project managers. These results validate the first research hypothesis. But

beyond the question of career development for personnel, the more general question of the valuation

of functional actors' participation in various projects led by the firm arises. This question is posed with

all the more acuity for actors that held significant responsibilities during the project, sometimes


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leading them to call into question authority over territories of the functional departments through

strong choices made during the project.

Staffing Project Teams in Project-Based Organization: Privileging the Rotation of Functional

Personnel in the Projects

Concerning the staffing of projects (cf. Table 2), the first approach uses the systematic continuation of

the teams. The second approach constitutes project teams from individuals that have already taken part

in various projects but have never had the occasion to work together on a project. The third approach

creates project teams from functional actors that have never had the occasion to work together on a

project and, for the majority of them, have never taken part in a project.

Table 2

Staffing Approach and Organizational Structure

Examination of the results from variance analysis (in Table 2) shows that the staffing approach for

project teams seems to be a linked to the organizational structure of new product development

projects. As such, the companies whose new product development projects are characterized by

project-based organization mainly privilege (63.22%) a staffing approach based on selecting

functional managers who have never taken part in a project or have never had the occasion to work

together on a project.

Conversely, a logic that builds project teams using ones that have already proved themselves in the

management of former projects appears to accompany a matrix or function matrix organization for

new products development activity.

The staffing approach implemented in project-based organizations favors job rotation of the functional

actors in various projects led by the company. This job rotation can be viewed as a way for the

company to develop learning and increase human capital accumulation (Campion et al., 1994). It also

offers organizational actors the opportunity for multiple learning opportunities insuring what Keegan

and Turner (2000) called the ‘the spiral staircase case’.


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Companies that have decided to create a corps of project management specialists privilege what

Midler (1995) calls a methodological approach to project management centered on tools and

techniques. On the other hand, some other companies emphasize a widely diffused project

management competence. This competence is spread throughout the firm through the rotation of the

personnel involved in successive projects and the alternation of duties carried out by project managers.

Rotation of functional personnel in various projects led by the firm also appears to be the foremost

way to favor collective learning during the project and inter-project capitalization on this learning

(Garvin 1993).

The renewed diversity brought about by rotation of functional actors in various projects led by the

company can be viewed as the ‘orthogonality’ of the logic of job rotation. Orthogonality exists

between projects (the horizontal dimension of organization) and functional departments (the vertical

one). This approach is possible only if the available human resources are sufficient, taking into

account both the relative size of projects led by the company compared to the company’s size and the

relative degree of specialization of actors with regard to the needs of various projects. Moreover, the

company must provide a clear valuation of project experience in career management of personnel

involved in the projects. If renewed diversity is the condition of the diffusion of project culture within

the organization, career management of project actors is the vector of its diffusion.

CONCLUSION

This research demonstrates that companies that implement project-based organization for new product

development activity tend to privilege the rotation of functional personnel as the project team staffing

approach and the alternation of duties held by project managers. Moreover, as this research

comprehends organizational structure issues, project management aspects and HRM perspectives, it

raises certain questions on the issue of transfer and memorization of learning developed during the

projects.

Project actors bring with them much of the knowledge created within projects, and new knowledge

created within these projects is embodied in the tacit experiences of these actors (Davenport and

Prusack 1998). They are also effective vectors for the transfer of knowledge developed during the


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projects. The company must make sure that this transfer is effective if it wants to ensure that learning

does not remain a simple local knowledge tacitly embodied by some individuals. In so doing, the

company profits from their contributions. Indeed, these ideas can have a significant impact on the

organization only when they are largely diffused rather than held by a limited number of individuals

(Garvin 1993).

Finally, this approach to staffing new product development projects teams, which implies the rotation

of functional actors in various projects led by the firm, can also be seen as a way for the company to

learn about its employees and its activities (Ortega 2001). The relationship between factors leading to

the implementation of job rotation in the company and staffing approach to projects adopted would

constitute an avenue for future research.


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REFERENCES

Anderson H & Larsson A (1998) Projects as an Arena for Innovation: Images of Projects and their

Implications, Academy of Management Executive, 10(4): 17-26.

Brown SL & Eisenhart KM (1998) Competing on the Edge. Strategy as Structured Chaos. Harvard

Business School Press, Boston, MA.

Clark KB & Wheelwright SC (1992) Revolutionizing product development: quantum leaps in speed,

efficiency and quality, Free Press, New-York, NY.

Cooper RG (1994) Third-Generation New Product Processes, Journal of Product Innovation

Management, 11:3-14.

D'Aveni RA (1994) Hypercompetition: Managing the Dynamic of Strategic Manoeuvring. New York:

Free Press, New-York, NY.

DeFillippi RJ & Arthur MB (1998) Paradox in Project-Based Enterprise: The Case of Film-Making,

California Management Review, 40(2): 125-139.

DeFillippi RJ (2002) Organizational Models for Collaboration in the New Economy. Human Resource

Planning, 25(4): 7-22.

Garvin DA (1993) Building a Learning Organisation, Harvard Business Review, 78-91.

Gupta AK & Wilemon D (1996) Changing Patterns in Industrial R&D Management, Journal of

Product Innovation Management, 13: 497-511.

Hobday M (2000) The Project-Based organization: an Ideal Form for Managing Complex Products

and Systems?, Reseach Policy, 29: 689-710.

Keegan AE & Turner JR (2003) Managing Human Resources in the Project-based Organization. in

Turner JR (Ed.) People in Project Management, 1-12, Gower, Aldershot.

Midler C (1995) Projectification of the Firm: The Renault Case, Scandinavian Journal of

Management, 11(4): 363-375

Miles RE & Snow CC (1994) Fit, Failure, and the Hall of the Fame. Free Press, New-York.

Ortega J (2001) Job rotation as a learning mechanism, Management Science, 47(10): 1361-1370.

Simon HA (1991) Bounded rationality and organizational learning, Organization Science, V2(1): 125-

134.

Rothwell R (1992) Developments Towards the Fifth Generation Model of Innovation, Technology

Analysis and Strategic Management, 1(4): 73-75.


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Figures & Tables

Figure 1


CLUSTER ANALYSES

Classification of the sample companies

on each “phenomenon” (i.e. Organization of the Projects,

Career Development of Project Managers)

ANOVAs

Variance analyses to explain the group membership of the

sample companies

(Dependant Variable = Organizational Structure of New

Product Development Projects)

FACTOR ANALYSES

Factor analysis on the data relative to each “phenomenon”

(i.e. Organization of the Projects, Career Development of

Project Managers)

Factor scores : each company

on the main dimensions

(Factor axes)

characterising each “phenonmenon”

Group membership of the companies

on each “phenomenon”

1st Stage

2nd

Stage

3rd

Stage


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Figure 2

Dimensions of Project-Based Organization

(the main dimensions and the mean positions of the groups)

Authority & Responsibility of

project directors

Unity of the projects Autonomy of the project teams

high

high high

low

Functional organization

Project-based organization


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Figure 2

Project Managers' Career Development

(the main dimensions and the mean positions of the groups)

Project+Project

Project+Function

Project+Product Project+Production

high

high high

high

low

Constitution of a corps of project specialists

Project-Product duties alternation

Project-Functional duties alternation

Technician logic (and Project-Functional duties alternation)


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Table 1

Career Development and Organizational Structure

Organizational Structure

of New Product Development Activity

Mean

Standard Deviation

Matrix or

Function Matrix

Project-Based

Organization

F

Significance

Level

Career Development of

Project Managers

2.1

1.032

2.617

1.101

5.23 0.025


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Table 2

Staffing Approach and Organizational Structure

Organizational Structure

of New Product Development Activity

Mean

Standard Deviation

Matrix or Function

Matrix

Project-Based

Organization

F

Significance

Level

Staffing Approach for

Project Teams

2.209

1.423

2.842

1.461

3.5 0.065


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Human resource management in project-based organization

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