The discussions swirling around the topic of the macroeconomic trend towards a “project economy” tend to skirt past a question: if we’re moving towards a “project economy,” where are we now? Where have we been all this time? GTIM Nation regulars are aware of my high-level distinction between the three types of management: Asset, Project, and Strategic Management. For newbies, my working definitions are:
- Asset Management concentrates internally on the organization’s assets, and seeks to “maximize shareholder wealth.” Its main source of usable information is the general ledger.
- Project Management looks outside the organization to its customers, and seeks to deliver goods and services on-time, on-budget, fulfilling all of the conditions of the customer-specified/expected scope. Its main source of usable information comes from the output of Earned Value and Critical Path methodologies.
- Strategic Management is all about market share. These guys couldn’t care less if the organization is leasing or purchasing equipment, or processing record-low Baseline Change Proposals. They do care very much about how the organization is doing in relation to its competitors.
As I’ve been pointing out for some time (hey, when I’m right, I’m right) the fundamental principles of business and management taught at the college level are firmly rooted in the Asset Managers’ domain. Virtually all of them still teach the easily-disproved drivel about how the point of all management is to “maximize shareholder wealth,” and its adherents have been known to actually disparage anyone who disagrees with that notion.
But the wheels have been coming off of that epistemological vehicle for some time now. In the 1980s it was the Strategic Managers’ insights running counter to the Asset Managers’ that led to the business world phenomena of the hostile takeover, which by itself should have overturned the “maximize shareholder wealth” mantra. Previously, the (rather simple) formula for deciding whether or not a company should stop doing business was based on the idea that (from Investopedia):
…a firm should never produce whenever it cannot cover all of its production and distribution costs in the long run. In the short run, a firm's willingness to produce should continue up until the point where its marginal cost curve is no longer above average variable costs.[i]
Notice how each of the parameters listed above are both (a) internal to the organization, and (b) derived from the general ledger. It’s as if those who created the classical models for deciding whether or not a given company should continue doing business could never dream of a scenario where a competitor was willing to take a short term loss in order to buy up a controlling share of the target company, and force them into bankruptcy, with no thought whatsoever of the target’s variable costs, marginal cost curve, or any other factor other than its market share. (As an aside, right there is another hint that the Asset Managers don’t have a handle on the ”point” of “all management.” Market share is obviously very valuable, and yet never appears in the asset side of the ledger.)
Meanwhile, Back In The Project Management World…
To the extent that those aspects of the PM codex that mildly challenged (or even out-and-out overturned) the long-standing Asset Managers’ take were adopted by project-centered organizations, those organizations began to (generally speaking) out-perform those that didn’t. In classical survival-of-the-fittest style, the companies whose business strategies were entirely enmired in the maximize-shareholder-wealth model began to lose out to the ones with a greater customer-focus, who were willing to sacrifice asset performance if it meant greater customer satisfaction on a broad basis. I can just imagine the reaction that an early-adapter of PM would receive the first time she said out loud in a board meeting “I don’t care if it reduces shareholder wealth! We’ve got to do something about delivering our product/service on-time, on-budget, or we’re toast!” In this sense we have been moving towards a Project Economy since the time PMI® came on the scene and began to codify and publish these strategies, in 1969.
Okay, but what about that anchor business?
The one anchor that’s been holding back the natural macroeconomic move towards a Project Economy is the whole maximize-shareholder-wealth business that I’ve been ranting about for literally my entire business-writing career. The other one is far more subtle, but almost as difficult: the notion of economies of scale.
PMI® President and CEO Sunil Prashara discusses some key factors in the move towards a Project Economy in this YouTube video, including workers’ ability to perform more than a single or limited number of functions. While this is undeniably true, it does raise the question, How did we get to a broadly-adopted model predicated on a narrow set of functions for each worker? I believe its material (if not proximate) cause was the American industrial revolution, with its centerpiece being the introduction of the conveyer-belt method of manufacturing, which took full advantage of economies of scale. Prior to Henry Ford’s remarkable innovation, more broadly and highly skilled workers would produce fewer automobiles, and at a greater cost. The conveyer belt allowed Ford to dramatically out-perform his competitors, but the tradeoff was that the consumer had to accept whatever Ford was willing to produce within that price range. When Henry Ford himself famously said that he wouldn’t even offer any color other than black for the Model T, I don’t think he had accommodating the customers’ varied stylistic tastes in mind.
So, where does this leave us in 2020? Yes, we’re headed toward a Project Economy, but the progress is slower than it would otherwise be, weighed down by two management axioms taken from the Asset Managers’ narrative, and at odds with the PM version. We PM-types have been fighting the ideological battle since 1969, but perhaps we don’t have to do that any longer. The macro-economy, with its (somewhat merciless) tendency to separate winners from losers based on the validity of their business models, will do this for us as we inexorably move towards the Project Economy.
It would still be fun to see how much faster we’d get there if we cut those anchors loose.
[i] Retrieved from Investopedia, https://www.investopedia.com/ask/answers/062415/what-factors-go-determining-businesss-shutdown-point.asp, July 5, 2020, 15:16 MDT.