exploring the concept of value creation in program ... · exploring the concept of value creation...

Exploring the Concept of Value Creation inProgram Planning and Systems EngineeringProcessesPeerasit Patanakul1 and Aaron Shenhar2 *

1School of Technology Management, Stevens Institute of Technology, Hoboken, NJ 070302Rutgers Business School, 180 University Avenue, Room 311, Newark, NJ 07102

VALUE CREATION IN PROGRAM PLANNING AND SE PROCESSES

Received 16 July 2007; Revised 13 March 2008; Accepted 10 June 2009, after one or more revisionsPublished online 20 October 2009 in Wiley Online Library (wileyonlinelibrary.com)DOI 10.1002/sys.20155

ABSTRACT

Almost every large system is initiated with an intention of building something, which has new value to itsstakeholders. Yet, turning this simple statement into reality is often problematic since the concept of valueis not always explicitly defined or structually incorporated in the formal frameworks of program planningand systems engineering. Quite often, beyond traditional financial measures or technical and operationalrequirements, there is little agreement of what program value really means, and there are limitedtheoretical models that could help conceptualize and focus its essence. In this exploratory study, weinvestigated the components of program value in several major defense programs that were nominatedfor Aviation Week’s Program Excellence Award. Among other things, these programs had to declare whatvalue their product created. Our findings resulted in an initial framework, which identifies program valueaccording to three major groups: value to the customer, value to the performing organization, and valueto the team. The specific value components identified in our data suggest that program value could beformally and explicitly integrated into program planning and systems engineering processes. It can alsolead to further research and new applications that will be focused on value creation, rather than justmeeting performance and technical specifications. © 2009 Wiley Periodicals, Inc. Syst Eng 13: 340–352,2010

Key words: defense programs; program value; value management; program management; systems engi-neering; strategic program management

1. INTRODUCTION

The defense and aerospace industry has traditionally been thehome of large programs, which help companies translate theirstrategies into growth and profitability and serve the long-term needs of their customers. It goes without saying that

almost all projects or programs are initiated with the intentionof creating something that has new value for stakeholders. Thevalue could be tangible such as financial gain or better opera-tions, or intangible such as the creation of new knowledge.However, in a rather paradoxical way, beyond financial meas-ures, there is limited agreement of what does value reallymean—how to articulate it, measure it, or manage the processof its creation. This gap exists both at the conceptual level aswell as the practical level. On one hand, very little has beenwritten in the research literature on how to define and studyvalue that is created by a program, and there are no accepted

*Author to whom all correspondence should be addressed (e-mail: [email protected]; [email protected]).

Systems Engineering Vol 13, No. 4, 2010© 2009 Wiley Periodicals, Inc.

340

Regular Paper

theoretical frameworks that could guide such research in thefuture. On the other hand, in spite of broad statements inacquisition guidelines, it seems that program stakeholders donot always provide an explicit statement of the value createdby their programs and managers have difficulty defining it totheir teams. While programs are typically well defined interms of expected performance and requirements and even interms of long-term financial goals, they sometimes overlookthe obvious and do not articulate what is the value thatstakeholders should expect from such programs. If the ex-pected value is not clearly defined at the outset, it will be moredifficult to manage programs toward achieving this value.

These questions motivated the current study. Our hypothe-sis was that the program management and systems engineer-ing disciplines might benefit from a better understanding ofthe concepts of value both theoretically and empirically. Ifprograms will learn how to include a formal concept of valuein their program definition and systems engineering proc-esses, the awareness of teams toward achieving that value willincrease and overall end results will better serve the needs ofcustomers, teams, and performing organizations.

Thus the objective of this exploratory research was to studythe concept of program value. The fundamental researchquestions were: “What is the value that is created by pro-grams? How do programs articulate such value, and howcould such articulations become a standard part of everyprogram’s planning phase?” To achieve this objective, weexamined the submissions of several major defense and aero-space programs that were nominated for Aviation Week’sProgram Excellence Award [e.g. Aviation Week, 2009]. Theaward guidelines require programs to define the value theyhave created, beyond the classical measures of meeting time,budget, and requirements goals, and beyond the commonfinancial objectives to the performing organization. We exam-ined the submissions of 18 programs; searching for consis-tency and patterns that may guide further and deeper researchand eventually help articulate a value component in programdefinition and systems engineering processes. Our findingsidentified some lessons, which could lead to a more extensivestudy in the future. We hope that this process will eventuallyhelp create better guidelines on how to explicitly define valueahead of time and how to focus large programs on valuecreation during the program’s lifecycle. Such guidelines arerelevant both for program planning and for systems engineer-ing processes. Note, however, that this study was conductedto investigate the value of aerospace and defense programs offor-profit organizations. Additional research must be done toinvestigate the value of programs in other industries or not-for-profit organizations.

2. BACKGROUND

Typically, the concept and definition of value has been dis-persed and dependent on the perspectives of individuals andtheir disciplines [Ahmed and Yannou, 2003]. Yet, much of theliterature of systems engineering has been devoted to thesystems engineering process. The process has typically fo-cused on defining the right system requirements and develop-ing the means to achieve them [Sage and Rouse, 2009; Bahill

and Henderson, 2004]. As for system value, Blanchard [2004]suggested that a system should be measured in terms of itstotal value to the consumer, using both technical and eco-nomic factors. On the technical side, the value of the systemdepends on its operating characteristics, broken down intoperformance and effectiveness. The economic factors focuson benefit (revenues) vs. cost (lifecycle cost). Ridder andVrijhoef [2007] proposed a dynamic systems engineeringapproach for adding value. They suggested that, in a construc-tion environment, the system value can be defined in terms ofthe psychological value, functional value, and technical value.The system cost, on the other hand, is broken down to devel-opment costs, operational costs, and maintenance costs. Thepurpose of this approach is to increase the system benefit (thedifference between value and cost) through the dynamiccontrol of the aspect systems, subsystems, and elements. InSpace Systems, Nilchiani and Hastings [2006] proposed asix-element framework for measuring the value of flexibility.They claimed that this framework will allow the decision-makers to measure the value of flexible systems design in itsdifferent dimensions through which flexibility in engineeringsystems can be mapped. Rouse and Boff [2004] and Bodnerand Rouse [2007] discussed value in the R&D-related issue.Rouse and Boff [2004] proposed 10 principles for charac-terizing, assessing, and managing value of value-centeredR&D organizations. Later on, Bodner and Rouse [2007] usedorganizational simulation to investigate the R&D value crea-tion. They focused their study on the issues of (1) how doesone attach a value to a particular proposed R&D activity and(2) how does one allocate funding over the various stagescomprising an R&D value stream. While these studies did notdefine directly the program value, their findings were used toguide and enrich our research.

In a broader context it would be helpful to look at theproject management literature. However, here too, projectmanagement research has rarely focused on project value.Some studies [e.g., Kwak and Ibbs, 2000; Ibbs and Reginato,2002] proposed a model to calculate the financial value (re-turn on investment) of project management. Also, Thiry[1997; 2004a] attempted to link the classical concepts of valuemanagement to project management. Many studies can befound on project selection and portfolio management. Mostof these studies suggest that projects should be selected basedon the benefits they are expected to contribute to the organi-zation’s strategic direction [Pennypacker and Dye, 2002].Those benefits can be captured in terms of financial benefits,organizational benefits, competitive benefits, etc. Numerousproject selection techniques have been proposed [Cabral-Car-doso and Payne, 1996], where resources, operation, and tech-nology limitations of the organization must be considered.Overall, these studies suggested that management shouldmaintain a balanced mix of projects in the organization’sproject portfolio [Cooper et al., 1998].

Value creation is clearly connected to an organizationalstrategy and long-term goals. Thus, several works have indi-cated that projects and programs should help companiestransform their business strategy into action [Bowen et al.,1994; Cleland, 1998]. This realization has focused re-searchers’ attention on the strategic aspects of project man-agement, studying, for example, the concepts of project

VALUE CREATION IN PROGRAM PLANNING AND SE PROCESSES 341

Systems Engineering DOI 10.1002/sys

strategy, strategy implementation by projects, and alignmentof project management with business strategy (Artto et al.,2004; Morris and Jamieson, 2005; Shenhar et al., 2005;Milosevic and Srivannaboon. 2006].

Another relevant area of study deals with the question ofproject and program success. Traditionally, projects werejudged based on time-cost-performance dimensions. How-ever, similar to corporate balanced scorecard studies, someproject management researchers have suggested using acompound stakeholder approach to evaluate project suc-cess. This approach proposes multiple success dimensionssuch as project efficiency, benefits to customers, benefitsto the performing organization, and preparation for thefuture [Decotiis and Dyer, 1979; Pinto and Slevin, 1988;Freeman and Beale, 1992; Shenhar et al., 2001]. Clearly,project success dimensions and project expected value areclosely related. Once we explicitly define the concepts ofproject value, they can be used as a basis for assessing andmeasuring project success.

Finally, no discussion of program value is complete with-out looking at Value Engineering. The Society of AmericanValue Engineers (SAVE) and the European Governing Boardof the value management training and certification system(EGB) suggest that “value” can be defined as a ratio betweenthe satisfaction of an explicit or implicit need and the re-sources invested to achieve it. Value, therefore, can be seen astypical ratios between quality & cost, function & cost, worth& cost, performance & resources, satisfaction of needs & useof resources, and benefit & investment [Thiry, 2004b]. SAVEand EGB also define Value Management (VM) as the com-bined application of value methodologies and other method-ologies at the organizational level in order to improveorganization effectiveness. VM includes, for example, the useof processes, tools, and techniques derived from the work ofLawrence Miles [1961] and specific value methodologiessuch as value analysis (VA) and value engineering (VE).

3. RESEARCH DESCRIPTION

The main objective of this research was to investigate theexpected value created by programs beyond typical finan-cial measures. Specifically, we looked at the value of majordefense programs in for-profit organizations. We also in-vestigated the value of programs of different types, catego-rized based on different stages of program lifecycles,namely, development, production, or sustainment pro-grams. The complexity of the programs we studied was atthe “system level,” according to Shenhar and Dvir [2007].This enabled us to look for system program values both inplanning and systems engineering processes. None of theprograms we studied were at the assembly or array (sys-tems of systems) level.

Data sources: In 2004 Aviation Week and Space Technol-ogy Magazine initiated an Annual Program Excellence Awardfor the aerospace and defense industry. The goal of the Awardprogram was to create higher standards of excellence in theindustry and share lessons learned across companies for betterfuture performance. Each year, major aerospace and defensecontractors are encouraged to submit their leading programs

as candidates for the Award. About 20 programs are thennominated. Based on a common framework, every nomineesubmits a report detailing the management of their pro-gram. The submissions are then evaluated by an inde-pendent team of judges, who score the submissions ondifferent criteria. The evaluation is based on four majorcriteria areas, divided into several subcriteria. The areasand their relative weights are: Value Creation (10%), Or-ganizational Processes (30%), Addressing Complexity(30%), and Metrics (30%). The information in the reportssubmitted for the Award is unclassified and it relates onlyto the managerial aspects of the programs, and not to anypropriety, business, or technical data; thus enabling cross-learning by sharing the data across the industry. In addition,nominees are asked to describe any best practices theydeveloped internally, which can be shared with the industryduring Aviation Week’s A&D annual conference.

Sample: Out of 19 programs that were nominated for theaward in 2006, we studied 18 programs from 6 for-profitorganizations (see Table I). The only program that wasdropped was from a nonprofit organization. Studying pro-grams from different organizations helped ensure the validityof the findings across organizations.

Content analysis: Using the nomination reports, we con-ducted content analysis [Bauer and Gaskell, 2000] to identifywhat was declared as program value. To extract the mostinformation from each report, we performed content codinginto major and secondary groups. Based on such coding, wewere able to group the value of programs into three catego-ries—value to the customers, value to the performing organi-zation, and value to the team. We then performed cross-caseanalysis to finalize the categories of the value elements in eachcategory.

Pattern analysis and discriminant analysis: The programswe studied were in different phases in their lifecycle—devel-opment, production, and sustainment. This distinction had animpact on the dynamics of program management, especiallywhen the programs were very large and extended over longdurations. The typical main activities of development pro-grams involved the creation of a totally new product or systemthrough development, testing, and validating. In productionprograms, most development was already completed andmajor activities involved manufacturing work and improve-ments of production lines. In a program in the sustainmentphase, the system was already operational and the main ac-tivities of the team were to maintain the system’s operationcapabilities and to keep improving them. The only develop-ment activities that were performed at this phase related tosystem enhancement, upgrades, and modernization.

Having these data points, we investigated the differentvalue statements of programs in different phases. To do so,we employed pattern analysis based on frequency count toobserve any emerging pattern. We also performed somestatistical analyses, namely, tests of equality of groupmeans and discriminant analysis. This was done to observeany statistical significant difference among program valueof different types.

342 PATANAKUL AND SHENHAR


4. RESULTS AND DISCUSSION

4.1. Toward a Definition of Program ValueAs the literature review shows, although several definitionsof value were suggested, there is very little agreement of whatprogram value really means. In this study, we initially definedprogram value as:

The explicit and implicit benefits to the program stakeholdersgenerated from the program’s outcome versus the tangibleand intangible resources invested to achieve those benefits.

This definition is a formal expression of: “Are you gettingvalue for your money?” or “Are you getting your money’sworth?” Both conceptually and practically, different individu-als or organizations may or may not perceive the same valueof a program. These perceptions are dependent on the benefitseach stakeholder expects to gain and the resources they invest

into the program. This definition is similar to the generaldefinition of value, suggested by the Society of AmericanValue Engineers (SAVE) and the European Governing Boardof the value management training and certification system(EGB). However, it is interesting to note that this definitionis broader than the Department of Defense’s definition of “thecapability provided by a new product or service, and theschedule and financial terms allocated to generate that capa-bility.” While both definitions are similar, we believe thatvalue should be seen as more than just “creating capability,”and that benefit can be in a wider range of options—safety,security, or quality of life, to name just a few.

4.2. How Did Program Managers ArticulateTheir Program Value? Even though we defined the value of programs as mentionedabove and used it to frame our research, based on content

Table I. Sample Programs Studied



analysis, we found that the concept of program value has notbeen fully articulated as such by the nominating programsacross the board. When asked to describe the program value,the majority perceived the value in terms of benefits gainedfrom the program outcomes (first half of the definition).Others described value in general terms such as better out-comes or improvements. This observation leads to severalarguments.

On one hand, it suggests that the definition of programvalue has not been clearly defined to managers in the program,and it is the reason why some discussed only “the explicit andimplicit benefits to the program stakeholders generated fromthe program.” On the other hand, it also possibly shows thatthese practitioners focused on the more tangible outcomes oftheir programs such as meeting requirements. The argumentis that value to the user is already articulated in user require-ment documents. In addition, many would argue that nationaldefense is extremely costly and benefits such as protectingfreedom or saving human lives are hard to quantify in termsof dollar value. This point clearly needs more research.

Yet, how important is it for program managers to fullyunderstand the value of their program? Perhaps if one juststicks to initially well-defined requirements, the value willconsequentially be created. However, it is well known that“things that don’t get measured don’t get done.” Conceptu-ally, one could argue that the higher the managers’ under-standing of their program value, the more it will help themeffectively lead their program to achieve it.

Furthermore, since systems engineering plays a criticalrole in any major defense program, it makes sense to ask: Howdo systems engineers deal with the definition and expectedcreation of value? From a systems engineering perspective, ifthe program value is not clearly defined, it may be difficultfor a systems engineer to identify the total system value andto distribute its components across the system and/or itsdevelopment phases.

One may also argue that, although the program value wasnot always well articulated, those programs were among themost successful. Yet, it is difficult to determine the degree ofsuccess without the articulation of value, and it is unknownwhether program management and systems engineering wereexecuted effectively. Finally, we may also ask: How does thelack of value definition impact the performance of less suc-cessful programs? How many programs in progress today are

struggling because the program value concept is still not fullyunderstood and not formally incorporated in the planning andsystems engineering processes of large programs?

While still exploratory, this research suggests that there arestill a few open questions, which need a better understandingregarding the role of value in major programs and theirsystems engineering processes. However, at this point wewere able to categorized program value into three groups:value to the customers, value to the performing organization,and value to the team. The following sections discuss eachgroup in more detail.

4.2.1. Value to the CustomersThe programs we studied were mostly government-con-tracted programs, having US Army, US Navy, US Air Force,and FAA as their main customers. While not stated explicitly,we found from the content analysis that the value to thecustomers as reported by these programs can be grouped intoconsistent subgroups with either near- or long-term benefits(see Table II).

The most common value to the customer of these programswas the near-term value of operational excellence (15 out of18 cases). The program managers’ perception was that withoperational excellence, the customers would have an abilityto maintain a leadership role in their operation arena. Forexample, from the GPS program we learned that “developingnew capabilities of GPS IIR-M is the first step toward majoradvancement in the GPS which will assure continue USpreeminence as a world leader in Global Navigation Sys-tems.” And for the F-22 program, the program managerreported “the F-22 Raptor is the US Air Force’s air dominancefighter for the next 40 years.” It is important to note, however,that due to its high cost, there is an on-going debate betweenthe Air Force and the DoD about how many planes wouldfinally be produced. (It may be that the Air Force may onlybe able to order about 120 aircraft, instead of the requested380, or initial Air Force estimates of 740). This exampledemonstrates clearly how the resources portion of the valuedefinition put into question the overall benefits from a pro-gram.

In addition, from the end users’ (e.g., war fighter) stand-point, program managers in our study perceived that havingoperational excellence means having the ability to effectively,safely, and securely perform day-to-day operations by having

Table II. Program Value to the Customers

* Number of programs explicitly or inexplicitly states this benefit.



a system with superior performance that will perform betterin combat operations and will eventually lead to better mis-sion success. The program manager of GCSS reported,“GCSS will revolutionize the way the US Army performs itslogistics operations. It allows commanders on the ground tomake tactical decisions using real-time, reliable data.… [T]heprogram is an integral part of the US Army’s transformationplan to become leaner and more agile, able to respond tosituations with significantly decreased lead times.” ARH pro-gram reported that “[t]he ARH-70A provides the war fighteran improved net-ready, see first, understand first, act first, andfinish decisively capability over the venerable OH-58D [ex-isting aircraft in use].”

Another important value is modernization, which may inturn lead as well to operational excellence. The programmanager of F21 stated, “It has transformed maneuver C2operations from using analog voice radio traffic and papermaps with grease pencil markings to using modern digital,computerized, moving map displays and convenient short-form digital messaging.”

Finally, customers may also see the long-term benefits ofthe program as a platform for future effort (e.g., F21 andERAM). In some of the programs we studied (RSLP, ICBM,and F21); the scope of the programs was providing systemsengineering and integration or mission assurance, verifica-tion, and validation.

Overall, it seems that knowing and explicitly defining thevalue to the customer could benefit program management andsystems engineering in many ways. First, it will help manag-ers and customers align their mutual expectations beyondachieving the formal requirements and specifications. If suchalignment does not exist, programs may deliver a system thatmeets its performance goals but does not satisfy the updatedneed of the customer. Such situations may happen whendynamic changes in markets or operational arenas haveshifted beyond what was originally articulated in systemrequirements.

Second, a clear understanding of those expectations canhelp program managers develop a program strategy for lead-ing programs to better satisfy their customers. Once again, aclear articulation of value can help both sides to see potentialbenefits along the way that were not recognized during theprogram inception and lead to improvements that otherwisewould not have been included.

Third, the explicit value of the program to the customershould be articulated in the systems engineering process. Itwill help a systems engineer better understand the customer’sneeds and the total system value even before system require-ments are written. Taking an earlier viewpoint and includingformal value statements in the systems engineering work mayenhance the chances of later success. After the needs and thetotal system value are clearly identified, the later steps insystems engineering process can then be executed more ef-fectively.

Finally, most of the programs we studied were DoD-con-tracted programs and are guided by formal processes anddocumentation under the Joint Capabilities Integration andDevelopment System (JCIDS) (e.g., CJCSM 3170.01C, up-dated in May 2007). Most of these guidelines relate to suchprocesses as needs and capabilities analysis, solutions and

performance analysis, and capabilities development and pro-duction. While the DoD guidelines are mostly process-ori-ented, they indeed require that analyses will relate to issuessuch as objectives, scope, scenarios, desired capabilities,functions, and doctrines. These requirements are later trans-lated to system parameters and technical specifications, whichform the basis for acquisition decisions and vendor selection.It is most likely that a clear focus on program value wouldcontribute to higher success in addressing the JCIDS.

4.2.2. Value to the Performing OrganizationBesides value to the customer, programs also generate valueto the performing organizations. From an organizational per-spective, the value of programs is frequently expressed firstin terms of financial measures. There are several financialmodels available to calculate returns on project/program in-vestment [Loch and Kavadias, 2002; Meredith and Mantel,2005]. However, it was encouraging to see that, in addition tofinancial values in terms of revenue and growth, programsindicated that they created other types of value to the perform-ing organization. Once again, these kinds of values appearedto be consistent across programs and related to issues such asmarket opportunity, strategic positioning, organizationallearning, name and brand recognition, and relationship devel-opment (see Table III).

Even though revenue and growth was recognized as im-portant, market opportunity was mentioned in more cases tobe an important value created by programs. Fifteen out of 18program managers perceived that their program helps thecompany restore and expand market share in existing markets,exploit opportunities in new market segments, and leveragethem to future business opportunities. For example, the pro-gram manager of ARH mentioned, “the ARH contract willlikely be one of the last manned rotorcraft purchased by theU.S. Army. Winning this contract brings a major formercustomer, the US Army, back to Bell and ensures another 30+year relationship.… [T]he ARH program represents the po-tential sales of up to 1,000 airframes when considering U.S.government purchases and foreign military sales.” For ICBM,the program will lead the expansion to adjacent markets vianew client projects. The program manager of GCSS wrote thathis program helps the company “increase market share in thelogistic arena.”

Strategic positioning was also noted as an important value.Eleven out of 18 program managers reported that their pro-gram supports organizational business strategy and will putthe company in a unique strategic position. For example,“STAR is the world’s only ISR platform in use today whichprovides real time GMTI data as well as providing real timebattle management. Thus, the company is uniquely positionedto exploit this advantage.” The program manager of ICBMwrote, “We are viewed as leaders in supplier quality manage-ment and large scale integration.” For the GPS program, “Asthe developer and supplier of 21 GPS IIR satellites, theLockheed Martin/ITT team became the premier Navigationsatellite provider beginning the mid 1990’s.”

Six out of 18 program managers reported organizationallearning as an important value to the organization. Organiza-tional learning leads to the improvement of process, people,and products from program learning and the opportunity for



knowledge sharing within and across the organizations. “Exe-cution of the IIR-M program has positioned the LockheedMartin/ITT Team to lead the way for developing even moreexciting advancements in GPS capabilities,” as reported bythe GPS program manager. Similarly, “Methodologies fromATLAS that are demonstrated to be ‘best practices’ are passedon to both the enterprise and corporate levels and support thecore competency and strategic objective of critical knowledgesharing across product lines.” The program manager of ARHreported that the program helps “develop and strengthenseveral key core competencies such as complex avionicsintegration.”

Name and brand recognition was also mentioned amongthe values generated by programs. By doing a great job, theprogram manager of RSLP noted that the company would berecognized in the community, which will enhance the com-pany’s strategic position. “429 helps restore the Bell Helicop-ter brand name for customer satisfaction after Bell’s less thanmeaningful participation in the market with 427,” as articu-lated by the 429 program manager. Finally, we also found thatthe program can bring value in terms of relationship develop-ment with the customers, or enhancing future business oppor-tunity.

This finding is not surprising. Clearly, programs couldcreate more value to the organization than just financial. Yet,it was encouraging to see how well some program managerswere able to recognize this value, especially strategic posi-tioning. Notably, in previous studies, conducted at the projectlevel, managers had difficulty articulating their project’s con-tribution to the strategic aspects of the organization [e.g.,Morris and Jamieson, 2005]. Such difference may relate inpart to the positions and seniority of program managers in ourstudy. The majority of program managers were either VicePresidents of their business units or senior program managers,

leading large and expensive government contracts. During thelong process of winning a contract, managers must clearlyunderstand the value and the position that these programsmust create for their mother organizations.

Conceptually, understanding the value that programs bringto an organization will help programs to be better aligned withthe strategic direction of the organization. Furthermore, as thespecific value components in Table III show, programs canfocus on more than just adding to the strategic alignment.Issues such as recognition, learning, and relationships canalso be identified upfront as excepted values and become afocus attention for the team. In sum, if the program managerand the team members understand the impact of their programon the strategic direction of the organization, there is a highpossibility that all program management decisions will bemade with the organizational benefits in mind. From theorganization’s perspective, the program value listed above canalso be used as part of the criteria for program prioritizationand program success assessment [Cooper and Edget, 1998].

4.2.3. Value to the TeamIn terms of program value to the team, we found that besidesincentives, program value is perceived in terms of challengeand excitement, career prospect, pride, name and recognition,networking, and user benefits. Even though it was not definedexplicitly, our content analysis revealed that value to thecustomer and value to the performing organization werementioned very often in different contexts throughout thesubmission reports. However, value to the team was men-tioned less frequently or in some cases was not mentioned atall. Table IV shows the distribution of the value to the teamamong the sample programs.

As reported by program managers, many of the teamsperceived that working in these programs is valuable since it

Table III. Program Value to the Performing Organization




requires “pushing the envelope,” which felt exciting andchallenging. For example “DSP’s evolving technology inser-tion to provide new capability and its expanded mission are asource of continuing inspiration and challenge”. The IFISprogram manager noted, “The nature of this product is suchthat the engineering team always has new and interestingfeatures to work.” Career prospects were also perceived byteams as valuable, particularly when working in the sameprogram for a long time: “Many employees have stayed onDSP for decades. In a few cases, two generations of familieshave worked on the program.” And some teams felt proud towork on programs where they could easily identify with theirprogram’s mission. “People want to work on a successfulprogram, particularly a program whose mission is so clearlyassociated with saving the lives of our war fighters in harm’sway,” noted F21 program manager. Or as the DSP programmanager wrote, “…[T]heir pride in being part of an extraor-dinarily successful effort that our war fighters live to tell usmakes a huge difference to our nation’s defense.” And in theARH program, “[T]he team knows they are involved in a veryunique program that has great consequences for our nationand an immediate need for our soldiers in harm’s way.”Finally, program managers also mentioned networking, aswell as working with people who are professional and knowl-edgeable help them learn and develop new skills.

It seems that understanding the value to the team helpsprogram managers create the right working environment,which may help their teams excel. The explicit and clearlyarticulated value can be used as a source of motivation andencouragement, helping teams to be more effective. Inciden-tally, as we have seen, cash incentives were not a major driverof value for the team. In summary, program teams see valuein their pride of being part of a significant and challenging

program, career opportunity, networking, and recognitiongained from working in the program.

As we have seen from the former discussion, explicit valuecreation may become an integral part of program manage-ment, and program managers should learn to manage theirprograms to achieve this value. Similarly, system engineersshould focus on value to the customer in order to understandthe customers’ needs and emphasize it during requirementanalysis and development. In the next section, we will discussprogram value at different stages in program life cycle.

4.3. Program Value and Program Life CyclePhase

As mentioned, the programs we studied involved differenttypes in terms of their lifecycle phase—six developmentprograms, four production programs, and seven sustainmentprograms. We performed frequency analysis (of the specificvalues that were mentioned for each program type) to inves-tigate the impact of program types on the perceived programvalue (see Table V). Since one program (USSGW) was al-ready completed at the time of reporting; it was removed fromthis analysis.

Based on program categorization and frequency count, wefound that programs in different phases have a similar patternof value to the customer (e.g., operational excellence—83%for development, 100% for production, and 71% for sustain-ment; modernization—33% for development, 25% for pro-duction, and 29% for sustainment). Not surprisingly, value interms of platform for future effort was not found in allproduction programs. Success enhancement is the value thatwas only found in sustainment programs. Multiple discrimi-nant analysis also indicated that there is no significant differ-ence among the value to the customer of programs in different

Table IV. Program Value to the Team




phases, whereas some difference was noted in value to theorganization and to the team as we discuss below (see TableVI, Tests of Equality of Group Means, with significance at 0.1level or better).

A similar pattern was found among three different types ofprograms in terms of value to the performing organization,(Tables V and VI). One significant note is that, even thoughname and brand recognition is a value that was noted in most

of the development programs (67%), it has not been found asa common value of programs in other types (0% for produc-tion and 14% for sustainment). The result indicates a statisti-cally significant difference among three types of programsbased on name and brand recognition (Table VI). In addition,when performing stepwise discriminant analysis, name andbrand recognition was the first variable entering the discrimi-nant function, indicating that it can be used as a predicting

Table V. Perceived Program Value and Program Type

Table VI. Tests of Equality of Group Means (Discriminant Analysis)

* The percentage of programs, which mentioned this value out of the total number of programs in this phase



variable for categorizing programs of different types. In sum,the results from our statistical analyses indicate that programsin different phases may have different perceptions in terms ofvalue to the performing organization. One value that is differ-ent is name and brand recognition. The reason is that newdevelopment programs create more public image and excite-ment than long-range production or sustainment programsthat have been around for years.

As for the value to the team, the results show no significantdifference for all kinds of value except networking and pride(Tables V and VI). Networking was only found among sus-tainment programs. Once again, this is because sustainmentprograms have been in service for decades (e.g., DSP, ICBM,and ATLAS exist more than 35, 37, and 50 years, respec-tively). Working for years in such programs, team membershave had the opportunity to accumulate and share knowledgeand experiences with many colleagues within and outside ofthe program. It is surprising, however, that networking wasnot found as a perceived value in the other types of programs.In terms of pride, the results show 50% in development andproduction programs and 14% in sustainment programs. Andas mentioned, such a difference is a result of the degree of theproduct newness and excitement the program creates.

Overall, when analyzing different program types, wefound that all programs created value of three kinds (to thecustomers, to the performing organization, and to the team)both in the near term and in the long term. Yet, specific valuesdiffered along the lifecycle stage of programs. This analysisvalidates our earlier claim that program value assessmentmetrics should be developed with specific considerations toprogram phase.

5. LIMITATIONS

This study is not free of limitations. First, on one hand, wemust note that the data were not independently or randomlycollected. Most likely, program managers made every effortto win the Award. Thus, difficulties or problems were typi-cally not reported in these submissions, and we may not knowwhat really happened. On the other hand, the self-reportingmay have forced managers to do their best in thinking andarticulating the expected values from their programs, thuscontributing to the richness of the data. To remedy this limi-tation, research in the future should focus on fewer programsbut conduct in-depth case studies that may expose deepershortcomings in studied programs.

Second, while several parties were involved in these pro-grams, the study was based on the information provided byprogram managers who are responsible for executing pro-grams in the aerospace and defense industry. We may expectthat other stakeholders will have additional perspectives. Forexample, customers (who fund these programs) may perceiveadditional values such as value to society, public image, etc.Interviews with customers and other stakeholders will enrichthe data collection process in future research.

Third, the small sample of cases (18 programs in sixorganizations) may suggest that program value identified maybe unique to those companies and their industries. Perhaps inother industries, other program values may have different

weights than the ones noted in the defense and aerospaceindustry. Similarly, programs in not-for-profit organizationsmay indicate other forms of value than those found in ourstudy. More research is clearly needed to refine and expandof the concepts of value in major programs both in for-profitand not-for profit organizations.

6. IMPLICATIONS

Even at its preliminary stage, in addition to an explicit updateddefinition of value, this study confirmed that programs createdifferent forms of value for different stakeholders—value tothe customer, value to the performing organization, and valueto the team. It also suggests that there is a rich ground forfurther and deeper conceptual and empirical investigation, aswell as to more detailed research questions. For example, isthere value that is specific to a unique customer? Does theindustry impact the type of value created? Do programs innot-for-profit organizations create different values from thoseof for profit organizations? Another important aspect is theinterdependence among different kinds of values, that is, doesone type of value affect the others? Since this study identifieseach form of value independently, future study should beconducted to investigate the interrelationship among differentforms of value and the way to address those interrelationshipsin program management.

The results of this study are important for practitioners forseveral reasons. First, the definition of program value helpscreate a common understanding when it comes to the discus-sion about value during program initiation and execution.After the expected value is determined, programs should bemanaged toward achieving it. A program manager shouldconsider creating a program strategy, which balances allforms of value, and all program activities should be linked tothe program expected value.

A program manager must first deal with the expected valueto the customer to help ensure that all program deliverableswill meet or exceed the customers’ expectation. Under-standing the value to the performing organization helps align-ing program management with the business strategy of theorganization. And understanding the value to the team helpsthe program manager create a working environment thatsupports greater team effectiveness.

In addition to program management, the value concept canplay a significant role in the activities of systems engineering.Understanding program value should impact the systemsengineer’s job from the outset. Together with dealing withsystem requirements, the systems engineer should focus onthe value proposition, which will have an impact on the restof the SE activities. Value creation should be included infuture systems engineering guidelines and frameworks. Oncea problem has been defined and potential feasibility estab-lished, systems engineers should become aware of the re-quired value forms and articulate those in their formalplanning process.

While understanding all forms of value is useful, thesystems engineer should pay the highest attention to the valueto the customer. If this value is clearly defined, the systemsengineer can then translate it into better requirements and



technical specifications. At every step of the process thesystems engineer should test its impact on enhancing theexpected value from the system. Identifying and articulatingthe expected value from a program should become part of thesystems engineering process. Figure 1 describes this processas a modification of the traditional process.

7. CONCLUSION

Given the limited information about program value in pre-vious literature, this preliminary study was initiated to iden-tify how major defense programs look at the concept ofprogram value. Using data from aerospace and defense com-panies’ submissions to Aviation Week’s Program ExcellenceAward, the study looked for consistent patterns of differentkinds of value that were described by program directors.Program value was defined as “the explicit and implicit bene-fits to the program stakeholders generated from the programversus the tangible and intangible resources invested to

achieve those benefits.” As seen, the value created by pro-grams can be divided into three different types for differentstakeholders—value to the customer, value to the performingorganization, and value to the team. Furthermore, value ofprograms in different phases of their lifecycle, namely, devel-opment, production, or sustainment, is perceived differentlyby program directors. As we concluded, to be more effective,both program management and systems engineering need toformally incorporate the concept of value into their formalprocesses. And as suggested, the findings from this study canbe used to create guidelines, especially when they are appliedto different industries, environments, and type of the organi-zations.

ACKNOWLEDGMENT

We are grateful to Aviation Week and Space TechnologyMagazine for initiating the Program Excellence Award Pro-gram in the aerospace industry and for providing the data for

Figure 1. Program value and the systems engineering process in the life cycle. Adapted from Blanchard [2004].



this study. In particular to Carole Hedden for her continuedsupport and encouragement of our research efforts.

REFERENCES

W.B. Ahmed and B. Yannou, Polysemy of values or conflict ofinterests: A multi-disciplinary analysis, Int J Value-Based Man-agement 16(2) (2003), 153–179.

K.A. Artto, P.H. Dietrich, and M.I. Nurminen, Strategy implemen-tation by projects, PMI Res Conf, London, UK, PMI, 2004,103–122.

Aviation Week, Aviation Week Sixth Annual Program ExcellenceAward (February 24, 2009) http://www.aviationweek.com/aw/generic/story_channel.jsp?channel=busav&id=news/AWARD022409.xml.

A.T. Bahill and S.J. Henderson, Requirements development, verifi-cation, and validation exhibited in famous failure, Syst Eng 8(1)(2004), 1–14.

M.W. Bauer and G. Gaskell (Editors), Qualitative researching withtext, image, and sound. A practical handbook, Sage, London,2000.

B.S. Blanchard, System engineering management, Wiley, Hoboken,NJ, 2004.

D.A. Bodner and W.B. Rouse, Undertanding R&D value creationwith organizational simulation, Syst Eng 10(1) (2007), 64–82.

H.K. Bowen, K.B. Clark, C.A. Holloway, and S.C. Wheelwright,Development projects: The engine of renewal, Harvard Bus Rev72(5) (1994), 110–120.

C. Cabral-Cardoso and R.L. Payne, Instrumental and supportive useof formal selection methods in R&D project selection, IEEETrans Eng Management 43(4) (1996), 402–410.

D.I. Cleland, Strategic project management, The Project Manage-ment Institute Project Management Handbook, Jossey-Bass, SanFrancisco, CA, 1998, pp. 27–54.

R.G. Cooper, S.J. Edgett, and E.J. Kleinschmidt, Best practices formanaging R&D portfolios, Res Technol Management 41(4)(1998), 20–33.

T.A. Decotiis and L. Dyer, Defining and measuring project perform-ance, Res Management 16 (1979), 17–22.

M. Freeman and P. Beale, Measuring project success, Project Man-agement J 1 (1992), 8–17.

W. Ibbs and J. Reginato, Quantifying the value of project manage-ment, Project Management Institute, Newtown Square, PA, 2002.

Y.H. Kwak and C.W. Ibbs, Calculating project management’s returnon investment, Project Management J 31(2) (2000), 38–47.

C.H. Loch and S. Kavadias, Dynamic portfolio selection of NPDprograms using marginal returns, Management Sci 48(10)(2002), 1227–1241.

J.R. Meredith and S.J. Mantel, Project management: A managerialapproach, Wiley, Hoboken, NJ, 2005.

L.D. Miles, Techniques of value analysis and engineering, McGraw-Hill, New York, 1961.

D.Z. Milosevic and S. Srivannaboon, A theoretical framework foraligning project management with business strategy, ProjectManagement J 37(3) (2006), 98–112.

P.W.G. Morris and A. Jamieson, Moving from corporate strategy toproject strategy, Project Management J 36(4) (2005), 5–19.

R. Nilchiani and D.E. Hastings, Measuring the value of flexibilityin space systems: A six-element framework, Syst Eng 10(1)(2006), 26–44.

J.S. Pennypacker and L.D. Dye, “Project portfolio management andmanaging multiple projects: Two sides of the same coin?“ Man-aging Multiple Projects, J.S. Pennypacker and L.D. Dye. MarcelDekker, New York, 2006, pp. 1–10.

J.K. Pinto and D.S. Slevin, Project success: Definitions and meas-urement techniques, Project Management J 19(3) (1988), 67–73.

H.de Ridder and R. Vrijhoef, Dynamic system engineering foradding value in the built environment, Insight 10(1) (2007),28–34.

W.B. Rouse and K.R. Boff, Value-centered R&D organizations: Tenprinciples for characterizing, assessing, and managing value,Syst Eng 7(2) (2004), 167–185.

A.P. Sage and W.B. Rouse, Handbook of systems engineering andmanagement, 2nd edition, Wiley, Hoboken, NJ, 2009.

A.J. Shenhar and D. Dvir, Reinventing project management: Thediamond approach to successful growth and innovation, HarvardBusiness School Press, Boston, 2007.

A.J. Shenhar, D. Dvir, W. Guth, T. Lechler, P. Patanakul, M. Poli,and J. Stefanovic, Project strategy: The missing link, Annu MeetAcad Management: A New Vision of Management in the 21stCentury, Honolulu, HI, 2005.

A.J. Shenhar, D. Dvir, O. Levy, and A. Maltz, Project success: Amultidimentional strategic concept, Long Range Plan 34 (2001),699–725.

M. Thiry, Value management practice, Project Management Insti-tute, Newtown Square, PA, 1997.

M. Thiry, “Program management: A strategic decision managementprocess,” The Wiley guide to managing projects, P. W.G. Morrisand J.K. Pinto (Editors), Wiley, Hoboken, NJ, 2004a, pp. 257–287.

M. Thiry, “Value management,” The Wiley guide to managingprojects, P.W.G. Morris and J.K. Pinto (Editors), Wiley,Hoboken, NJ, 2004b, pp. 876–902.

Peerasit Patanakul holds a B.E. in Chemical Engineering from Chulalongkorn University (Thailand), an M.S. inEngineering Management, and a Ph.D. in Systems Science/Engineering Management from Portland State University(Portland, OR). Currently, he is an Assistant Professor at the School of Technology Management, Stevens Institute ofTechnology (Hoboken, NJ). Peerasit’s current research interest includes multiple project management, strategic projectmanagement, and value-focused project management. His works have been published in IEEE Transactions onEngineering Management, Journal of High Technology Management Research, International Journal of ProjectManagement, and Engineering Management Journal. Peerasit is a recipient of the 2007 Best Paper Award from IEEEEngineering Management Society.



Aaron J. Shenhar, a world leader in project management, is currently a Professor of Project and Program Managementat Rutgers Business School. Until 2008 he was Institute Professor of Management and the founder of the projectmanagement program at Stevens Institute of Technology. Previously he was at various positions at the Universities ofMinnesota and Tel-Aviv. He holds five academic degrees in engineering and management from Stanford University andthe Technion in Israel. He was the first recipient of the Project Management Institute Research Achievement Award,and the IEEE Engineering Manager of the Year Award. Prior to his academic career, Dr. Shenhar accumulated 18 yearsof technical and management experience as an executive at Rafael, a leading organization in the defense industry inIsrael. In his research he is focused on project management, innovation management, and the leadership of professionalworkers in technology-based organization. He is co-author of the book, Reinventing Project Management: The DiamondApproach to Successful Growth and Innovation (Harvard Business School Press, Boston, 2007). The book was selectedamong the best five top business books of 2007.



exploring the concept of value creation in program ... · exploring the concept of value creation...

Documents