Managing Director Jon Vordermark shares his perspective project delivery services, and what has evolved over the last twenty years. It can be best classified as ‘commoditization’ of project resources. This article talks about this commoditization, the drivers behind it, where we are today, and its risk to small-to-middle market buyers.
Every organization aspires to run its operations with routine, repeatable, factory-like precision. And if a similar organization does it better, then executives will try to replicate their process. In the history of operations, we have seen industry-wide adoption of each other’s secret sauce, whether it is Eli Whitney’s concept of interchangeable parts, to Toyota’s ‘Just in Time’ production system and Lean Manufacturing.
However, unlike operations, project delivery work is an entirely different animal. Projects are the embodiment of an organization’s change initiatives – something new, different, untested, and unknown. The very definition of a project is that it has to be unique, finite, and situational.
Sometimes it is unpredictable and even volatile. The expertise behind delivering one, therefore, is more akin to pioneers, explorers, and adventurers – namely, those comfortable with that unpredictability. You still have to study project and change management and master it like any other trade. But even study and experience are not always enough. Those who are truly great have qualities that are innate – an interpersonal and political savvy; managerial courage; a motivational charisma; an uncanny drive for perseverance; and of course, an almost compulsive attention to detail.
Nevertheless, the volatility (and price) of project work can drive an organization nuts. For large-scale companies that tackle a voluminous portfolio of projects year after year, they yearn for some magical formula to achieve the same kind of factory-like precision as on the operational side of the house. [And who wouldn’t?] Granted, organizations such as the Project Management Institute (PMI) have done wonders to standardize the profession with industry-neutral tools and techniques. We’ve seen the rise of Project Management Office (PMO) departments that try to promote and centralize project activities. There are also development methodologies that have helped streamline certain project types (e.g., Agile, Six Sigma – DMAIC, etc.). But while all useful and recommended, these standards and tools don’t give some organizations what they’re really after – cheap, interchangeable parts and guaranteed, predictable results.
Over the last twenty years, large-scale companies have tried to address project unpredictability and cost with what could be best classified as ‘commoditization’ of project resources. But what does that mean exactly? A generic, one-size-fits-all project manager? And is this trend now industry-wide?
This article talks about the commoditization of project delivery roles; the drivers behind it, where we are today; and the risk to small-to-middle market buyers.
The impetus for project delivery commoditization
When we think of commoditized products, we envision materials and resources like oil, propane, soap, beef, sugar, chicken, and so on. To be a commodity, these materials and resources have universal characteristics:
- Indistinguishable from similar products
- Easily replaceable ("fungibility")
- Are highly available
- Have little to no price differentiation across suppliers
But what about project delivery services, such as project managers, change managers, and business analysts? Some would argue ‘yes’ based on what has changed over the last two decades.
Since the early 2000s, large scale, corporate buyers of project delivery services have sought stark cost-savings measures to their project delivery labor pool. The motivator was a receding (dot.com) economy in 2001 and amplified by the crushing weight of the housing bubble and 2008 recession. But these cost-savings measures were far more than the usual employee layoffs and consultant purges. They were, in essence, an evolutionary commoditization movement that lasted almost a generation.
Three catalysts had a hand in driving the movement:
The organization matrix shift (strong to weak)
Economic pressures motivated large-scale companies to recalibrate their organization models. Many were operating under a ‘strong matrix’ organization model, where project work and highly experienced project management leaders hold sway. ‘Strong matrix’ models were popular primarily because of the dot.com boom. They offered the best leadership structure for their enterprise dot.com project initiatives, such as grand investments in IT Infrastructure and web-based projects. But after 2001 the business climate became risk-averse. Large-scale companies pivoted to conservative (i.e., administrative and operational) priorities and shifted their project leadership models to the ‘balanced, ‘weak’, and ‘functional’ side of the project leadership matrix:
To achieve this shift away from a ‘strong matrix’ model, large-scale companies had to redefine, simplify, replace, and even devalue specialized project leadership:
- Redefine management and leadership expectations to that of coordination and administration
- Simplify and group project delivery roles into generic categories
- Replace senior project experts and consultants with bulk, third-party options
- Depreciate project delivery services via across-the-board rate caps by category
Large-scale companies replaced their boutique, specialist project firms with generic alternatives. Such project firms saw these changes as temporary – a reaction to a challenged economy. [They believed that once the 2001-2002 recession ended, things would return to normal.] But once the economy began to slip into recession again in 2007, the commoditization imperative was here to stay.
The staffing and Vendor Management Office (VMO) dynamic
The commoditization movement was a reset of the playing field, and staffing vendors raced to stake their claim on this new, post-recession frontier. The challenge for them was that their primary, large-scale buyers had new, demands and expectations. They sought cheap, indistinguishable, interchangeable, and easily replaceable staff. Vendor/product differentiation was now harder to achieve. In fact, it now boiled down to one thing – one’s position with the buyer’s VMO, or Vendor Management Office.
VMOs are intermediaries and competition filters. They serve as gatekeepers for vendor solicitations; they define contracting criteria (i.e., a preferred vendor list); and they set terms, conditions, and standardized pricing (rate cards). Not that it was the intended purpose, but VMOs became a catalyst for commoditization as well. By simply executing its mission, a VMO pits one staffing vendor against one another and avoids premium options. The effect drives down price and encourages product homogenization across the project delivery market.
The Managed Services product differentiator (scale economics)
From 2009 to 2016, as the economy stabilized, staffing vendors sought other ways to differentiate themselves. One way was the ‘managed services’ product. In managed services Large-scale companies outsource (and/or offshore) entire departments and disciplines to third-party vendors. The concept is not necessarily new. It is a common microeconomic, economy of scale strategy. But for the project delivery space (and especially within IT), managed services had never really been utilized (at least not to this scale).
The advantage to staffing vendors is that it allows them to:
- Compete on staffing volume
- Lower prices while protecting profit margin
- Secure multi-year contracts
- Cover operational as well as project-based needs (e.g., Shared Services, IT Support, Testing, etc.)
Through managed service contracts, a vendor can win greater favor with a VMO. And once a multi year contract is in place where the vendor has ownership of an entire service or division, it is less likely that it will face new competitive entrants for a while. These contracts can sometimes last five to ten years and cover staff needs from dozens to hundreds of resources.
The pervasiveness and scale of managed services today has become the ultimate commoditization catalyst of all. These contracts have been so lucrative that traditional consulting companies have got in the game, acquiring outsourcing and offshoring companies of their own to edge out competition and create even higher barriers to entry. And as far as the large-scale company is concerned, it is getting a reliable source of indistinguishable, interchangeable, and easily replaceable parts at an even lower price point.
The market-wide commoditization illusion
One might think that after almost a generation, this commoditization movement is market-wide, and that the landscape of project delivery services is full of project leaders who are both abundant and ‘a dime a dozen’. But this movement is not a typical commoditization phenomenon (namely, driven by the diffusion of intellectual property). Not at all. Rather, it is ‘commoditization by corporate decree’ by a handful of large-scale companies. We have not witnessed some cross-industry, “one-size-fits-all” solution to the volatility of project work. But two things did happen that created the illusion:
Large-scale buyers had success with building a generic, expendable base of project delivery staff for their own needs.
The market footprint of these large-scale buyers is so significant that we saw a reshaping of the project delivery market. The best way to explain the change is the 80/20 Pareto rule. That is, 80% of project delivery resources today are geared toward to 20% of the marketplace (i.e., the large-scale, Fortune 50, corporate buyer).
Another sobering way to interpret this rule is that 80% of the people calling themselves project delivery specialists might only be suited for that 20% of employers.
The takeaway is this: Today you have to look a little harder to find the kind of project leaders who can fit in your organization, particularly if you’re a small-to-middle market buyer. Project delivery services should come with a warning label: Even though the ‘high availability’ and ‘low price’ qualities of a commoditized product are hard to ignore, you might be purchasing something that was never intended to work in your organizational model. And to take that gamble might be more expensive in the long run, or worse, might subject your projects to stagnation, dilution, or outright failure.
The Commoditization of Project Delivery Services (Part 2)
In the next article, I will talk about the trade-offs of commoditized project delivery staff. I will also discuss the alternatives, especially for companies on paths of innovation and change.
About the Author
Jon Vordermark, PMP, is the managing director and founder of Mavendog, LLC — a management consulting company headquartered in Charlotte, North Carolina, specializing in project management, change enablement, analytical, and leadership development services. Jon has advised companies and led a variety of enterprise and global project initiatives for Fortune 500 companies, primarily in the technology sector. His specialization is in project recovery operations, having developed a reputation as a "go-to" leader for salvaging challenged and failing projects. Previously, he was a director and managing consultant with NTT DATA, Inc. [formerly The Revere Group, Ltd.] in the Business Transformation practice. He has also worked through Signature Consultants, LLC, providing project, program, and recovery services. He is a certified Project Management Professional (PMP) through the Project Management Institute.