Education and Skills

How to apply private-firm organisation to public institutions

The headquarters of Germany's Deutsche Bank is photographed early evening in Frankfurt, Germany, January 26, 2016.   REUTERS/Kai Pfaffenbach/File Photo

Introducing private-sector best practices to the public sector could prove beneficial. Image: REUTERS/Kai Pfaffenbach/File Photo

Kalin Anev Janse
Chief Financial Officer and Member of the Management Board, European Stability Mechanism (ESM)
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It goes without saying that managing huge projects is a complex and demanding process that requires continuous scrutiny. Doing so at a brand new public organization on an extremely tight deadline, with a small staff, is even more so, writes Kalin Anev Janse (@kaanev), secretary general and also a member of the management board of the European Stability Mechanism (ESM), the Eurozone’s lender of last resort. His co-author is David Blazquez Vila, team leader for the group’s project management office. In this opinion piece, they describe how they adopted the latest thinking at business schools — and at the Boston Consulting Group (BCG) — to successfully implement their plans. (This article reflects their personal views.)

The ESM, the Eurozone’s lender of last resort, is a mega project in itself. It started with predecessor European Financial Stability Facility (EFSF), which had to be set up in record time at the peak of the euro debt crisis. This 440 billion euro ($514 billion) sovereign backstop was created in less than eight weeks’ time. Only 30 weeks into its existence, the EFSF tapped the market for 5 billion euros, gathering a record-breaking book of 44.5 billion euros from more than 500 investors globally. To date, this is still the largest-ever order book for a first-time issuer. Not bad for a company that was just seven months old. Most start-ups would struggle to match those numbers. We mentioned this in a previous Knowledge@Wharton opinion piece. But we have not yet disclosed how an institution of fewer than 200 people can run such mega projects — business school style.

Seek Inspiration

Caught up in the initial rush, our first 12 employees ran the EFSF in a fast, flexible and entrepreneurial way. We had no time to think through all the details of the structure we wanted for the business. Just as it was up and running, we were tested again. In 2012, we had to open an even bigger shop, with a lending capacity of 500 billion euros and an investment firepower of 80 billion euros.

This time, we wanted to do it differently. We had to organize ourselves better. We were inspired by what business schools were thinking, and by a very interesting report titled, Strategic Initiative Management: The PMO Imperative,” from BCG. We decided to give it a shot and create a real strategic project management office (PMO). The main objective was to optimize our resources to run mega projects with minimal staff using as little taxpayer money as possible. In 2013, this had not yet been seen in the public sector. Only the best private-sector firms applied it. But we were convinced that this new approach would help us create the 21st century public-sector institution that we wanted to work for.

Build a Superb Infrastructure

Last year, the ESM set up a derivatives program for Greece worth more than 50 billion euros. We also issued our first-ever dollar-denominated bond. In total we ran numerous projects, using 7,000 person-days. How did we do that with fewer than 200 people? By first putting a state-of-the-art project infrastructure in place.

The ESM is an ambitious institution, able to run many new initiatives in parallel. So it is critical to maximize the use of our scarce resources and make sure every staff member remains focused on what is most important at any time.

Our Strategic PMO is run exactly the same way as at a private-sector and profit-driven company. A combination of project portfolio and dynamic resource allocation services support fast delivery, yet allow changes of direction as needed. In an institution whose tasks depend on political decisions, such changes happen a lot.

Last year, we had to put in place the short-term debt relief measures for Greece. This meant exchanging billions worth of bonds from floating to fixed rates, and building a derivative book of 50 billion euros. Typically, such initiatives take 18-to-24 months. We did it in six-to-nine months. A spot-on strategic PMO can dynamically change resources to align them to moving strategic objectives in volatile market conditions.

A Central PMO – at the Heart of the Business

At the ESM, we run all the major and strategic institutional initiatives through our PMO. The PMO is a centralized function, servicing all departments. The PMO provides real-time operational insight, so management has an up-to-date overview of how well we are meeting milestones and objectives. We know exactly where each of the projects stands in terms of resources, budget consumption, deadlines and delivery targets. This way, we can speed up the initiatives that are needed in a financial crisis, or during an assistance program, while relegating others to the backseat and slowing them down. At all times, it allows staff members to maintain focus on ESM priorities.

Our success has five pillars:

- A flexible project portfolio management service — that can shift gears and priorities at any time — allowing us to deliver on the strategic demands of our shareholders, the 19 countries of the euro area.

- Not delivering is not an option. The PMO ensures each single project will be completed, closed and evaluated. Without exception. We use experts, project managers, and twist-and-turn project management methodology (e.g., Agile software development) tailored to the public sector.

- A dynamic resource management system with institution-wide monitoring of projects to identify and solve potential resource clashes.

- Top Management engagement to ensure buy-in, quick change management, and financial budget approval. A corporate project committee meets and reports monthly to the managing director. The committee is chaired by the secretary general and a member of the management board.

- These fast decisions require accountability and transparency. Budget performance is evaluated. Over the past years, the PMO has never exceeded its budget, and independent external auditors have signed off on all our work.

Have you read?

A Truly Strategic PMO – More Than Just IT

PMOs only deal with IT issues in pretty much all public-sector institutions we have come across. With such a limited scope, the project manager feels responsible only for isolated IT tasks. But in the majority of projects, IT is not the only critical component for success. At the ESM, we also take into account public procurement, compliance with new regulations, new business processes innovation, and continuous change management. All this should be the responsibility of the PMO and the project manager.

“These days, strategy is tech and tech is strategy.”

Older institutions, with established structures, often face difficulties to overcome the separation between IT and business lines, and between back-office providers and customers. In the 21st century, they should be one team. These days, strategy is tech and tech is strategy.

At the ESM, we built the PMO from scratch, without legacies, establishing a new project management culture. Only 15% of our projects are pure IT projects. With this culture of innovation we transformed the outdated IT-back-office project management model into a modern, strategic, institution-wide business-oriented project management architecture. All human resources participating in the project report to one project manager as far as their project responsibilities are concerned.

Culture Matters

The strategic PMO is now well-established at the ESM and is seen as the most efficient way to deliver strategic objectives. These objectives are set by our shareholders – the 19 countries of the euro area – so we cannot afford any inefficiencies or failures to deliver.

Since establishing the PMO in 2014, the number of projects the PMO supervises has doubled each year. More and more business units are asking that their initiatives be executed under the project management framework. This year, for instance, we ran the production of our annual report as a project for the first time. The number of employees participating in projects has increased to 138 from 76 on a full- or part-time basis – 80% of staff.

Stronger Together

The public sector is increasingly recognizing the project management function as the best tool to deliver strategic initiatives using the least taxpayers’ money. The European Commission has launched a project management initiative called PM2, aiming to establish a common European signature project method. We have joined this initiative.

Business School Takeaways

Introducing a private-sector best practice to the public sector proved to be the right choice four years ago – even though it was pretty innovative. Our approach was to learn different methodologies (like PMI and SCRUM Agile) and frameworks (like lean and change management) and offer a toolkit to select the most effective formula for each project. Our key business school and business practitioner takeaways are as follows:

- An institution-wide, strategic PMO is the most effective mechanism for the C-level to drive the direction of the organization, and align resources with strategic objectives. The PMO should run all strategic initiatives. This is absolutely the case for the public sector as well.

- Be fast, agile and flexible on the project portfolio level to react rapidly and efficiently to changing political events, and to focus on the projects that add most value to your shareholders (or, for the ESM, member states in the European public sector).

- There is no silver bullet and no one way to do projects. Do not stop adopting different tools and learning new techniques, and select the most effective combination when planning your next project.

- A project management culture at all levels is the most effective way to deliver organizational change.

- A huge amount of data is produced in project monitoring and closure processes. Use analytics tools for data-driven decision making (e.g., which projects generate the best cost/benefit ratio after completion) and project planning (e.g., what is the usual deviation by type of project).

What’s Next for Us?

We want to push the PMO practice to the next level. We are now exploring ways to use data analytics and technology to improve project performance. We plan to use learning benchmarks to allow project managers to teach each other how to best deliver projects. We aim to continuously improve project performance in a collaborative style.

We see potential for robots in assisting in time-consuming administrative tasks, allowing project managers and PMOs to focus on activities that add more value. And we will start deep-data analytics and project intelligence to benchmark each single step of a project and look for process improvements. We’ll link these data to decision engines that enable rapid machine learning. They, in turn, could propose or execute actions to be undertaken by machines or humans.

There is an exciting (technological) world ahead of us. Also for mega-project champions.

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