Strategic Categorization of Projects

To be useful, a project categorization system should achieve all of the following:

·        it must provide an appropriate category for any project we may encounter,

·        it must permit classifications within each category,

·        it must provide useful insight about differences between projects in one category and projects in every other category, and

·        its categories must be readily translatable and comprehensible across human cultures.

If projects are to be categorized according to the products they are intended to produce, a possible alternative categorization scheme might draw on work already done by others who focused on products. 

The products of projects are a set of deliverables intended to be of service to the customer of the project.  While the deliverables may include one or more objects, such as an airplane or a highway, they are delivered for the purpose of providing a part of a service, transportation in this case.  The objects are not the products.  The products are the full set of services required to satisfy the customers stated or implied requirements.

The Boston Matrix

The Boston Consulting Group developed the matrix below. 

Problem Child: As new technologies develop sufficiently to become market worthy, many enterprises will begin their independent product development efforts in what is likely to be a high market growth arena.  They are Problem Children (PC) because their ability to develop a marketable product is unproven, because their resources to manufacture and market a new product is limited, and because the skills, leadership style, and organizational model required to develop a new product are not those required to acquire a significant market share.  The leaders of these companies are inventors, predisposed to perfect and enhance their inventions to the detriment of exploiting them in the marketplace.

Star: As the new technology matures further, a few of the problem children solve the marketing dilemma, often by introducing new leaders who have skills required to recruit and train a sales force, design and build manufacturing capacity, manage inventories, and cope with growing accounts receivable.  All of these activities require cash so the new leaders must also have credibility in capital markets.  These companies become Stars (S) by accumulating market share and are measured by revenue growth, not by profitability.

Cash Cow: At some point, however, the fast growing market begins to be saturated and market growth slows.  Concurrently, investors are likely to begin to expect that high revenues will be translated into profits.  History is marked by numerous occasions of various technology bubbles bursting.  Many of the stars vanish almost instantly, others a bit more gradually.  Only a few manage the transition to become Cash Cows (CC).  They achieve it, most frequently, by reducing costs.  The life of the cash cow is focused on producing greater and greater profits at lower and lower cost. 

Dog: Because cash cows are very profitable, they attract new competitors who have bypassed the initial two phases and enter at this juncture by virtue of reverse engineering, superior manufacturing or production capabilities, superior marketing techniques, and still lower costs.  Over time, these new entries carve up the market share of the cash cows until few of the companies holds sufficient market share to achieve the economies of scale required for profitability.  Those who lose in this struggle are Dogs (D).  We frequently see mergers of dogs who are operating on the questionable theory that, given enough dogs, it is possible to get milk.

Strategic Intent

In 1989[1], Hammel and Prahalad published their landmark article on strategic intent.  They offered a theory that products are developed to conform to the requirements of one of three strategic intents: technological excellence (TE), operational excellence (OE), or customer intimacy (CI). 

Products produced with a TE strategic intent incorporate features and functions that are not available in competing products.  The high development costs of these breakthrough products are born by a small customer base who perceive some advantage in having what others do not.  TE product development is technology driven and it tends to ignore customer input to the product development process.  TE products must produce extremely high gross margins in order to recover not only their own development costs but those of other failed TE development projects carried out by the performing organization.

Products produced with an OE intent are often reverse engineered from TE products already available.  These second entries may offer additional features and functions but will also offer more consistent quality and much lower prices.  OE products take advantage of lower development costs, efficient manufacturing or production processes, and economies of scale to achieve lower costs and prices.  Customer input is considered only to the extent that large groups of customers share similar requirements.  Lower gross margins are offset by higher sales volumes.

CI products are customized to the specific requirements of specific customers.  Product designers endeavor to understand and incorporate the environment of these customers as critical conditions under which their product must function.  CI development costs must be absorbed by a single customer, either through high price or high volume.

Project Matrix

Using the four Boston Matrix classes as rows and the three Strategic Intent classes as columns, we might choose to define projects in terms of their product characteristics.  While this yields a total of twelve theoretical project categories, as illustrated below.

PC-TE products are produced for fast growing markets usually associated with emerging technologies and with little attention to customer requirements.

S-TE products focus on employing emerging technologies and processes to add features and functions in order to increase market share.

CC-TE products focus on employing emerging technologies and processes to reduce costs.

D-TE products use emerging technologies to assimilate the products, services, or business processes of merged or acquired competitors.

PC-OE products imitate existing products while integrating more reliable or cost-effective production processes.

S-OE products imitate existing products while adding features and functions to build market share.

CC-OE products imitate existing products while modifying elements that drive costs.

D-OE products merge the features and functions of competing products to produce a single new product.

PC-CI products employ emerging technologies to achieve specific requirements of a single customer.

S-CI products facilitate market share growth on the part of the customer.

CC-CI products facilitate cost reduction on the part of the customer.

D-CI products facilitate integration of customer merged or acquired products, services, or business processes.

A payroll system development project might fall into any one of these categories.  An understanding of which category it fell into would facilitate appropriate decision making in each phase of a payroll project.  More complex projects, such as the development of a commercial airliner or an advanced weapons system, might include subprojects from many of the categories.  Here too, an accurate understanding of the purpose of the subproject would facilitate appropriate decision making.