Innovation and the dynamics of capability accumulation in project-based firms.

No such strategy will be a 'magic bullet' solving all the difficulties of managing a project-based organisation. Moreover, PBFs vary widely in their characteristics, markets and capabilities and will therefore benefit form different strategies. There are, however, some lessons which will be useful for managers to consider. Managers need to avoid being trapped in a market segment and sophistication level of projects that is not beneficial for the development of the firm. It is difficult to move into new markets requiring capabilities in different areas or of higher sophistication. Any such move will need to be incremental as projects in which capability accumulation can happen need to be acquired. The selection of new work therefore becomes a key issue: overload has to be avoided and types of projects which are beneficial for future development of capabilities need to be selected. Incentives for knowledge sharing from individual projects need to be in place for the firm as a whole to benefit from capabilities acquired in individual projects. An alignment of incentives on the project team level with the goals of the organisation is also required in regards to acquisition and execution: doing the best for a client, project or project team might put stress on the organisation, affect other projects, harm the development of organisational capabilities and negatively impact the performance of the firm.

To further the understanding of dynamics of innovation in PBFs, a conceptual integration between what happens on the project-level and the level of the organisation is required. While an organisational level analysis from a resource-based view can help to elucidate the performance of the organisation as well as the performance over time, this analysis will remain necessarily somewhat unsatisfactory. The relative autonomy of project teams in conjunction with the inherently unpredictable and risky nature of project execution makes it highly desirable to complement the organisational level analysis by an analysis of the project-level. Particular and explicit attention needs to be given to the time pressures evident on the project level. Project management focuses on the planning and use of resources and time on the project level in order to influence the performance of individual projects. Such understanding of time pressures and project performance is required for a thorough analysis of the conundrum of innovation in PBFs.

In this paper we have made some steps towards such improved understanding by utilizing tools from system dynamics to analyse how the resources and capabilities in PBFs are accumulated, how they are interrelated, and what role feedback plays in the dynamics of capability accumulation. This approach helped to develop a 'language' and a visual representation which could serve as a vehicle to engage dialogue, and facilitate strategic decision-making, in PBFs. Therefore, the approach could be used to form the basis of a tool for managers; allowing them to visualise the wider context, the causal relationships and the trade-offs inherent in their decision-making. This could be useful in respect to project acquisition and capability development, and help to avoid the trap of being caught in a vicious circle locking the company into limited knowledge areas. Ultimately, we aim to develop a toolkit which allows managers and project leaders in PBFs to better understand the trade-offs in time, and between activities and projects. This toolkit utilises a visual format to facilitate insightful discussions in the highly fragmented decision-making structures of PBFs, in order to better align project-based learning and firm level business requirements.

This paper contributed to the capability literature by drawing together insights from a range of studies in different PBFs in a variety of sectors and integrating them into a conceptual model. The paper carried forward work on innovation in project-based firms highlighting particular issues shaping capability accumulation in these firms: time-pressure, learning in the context of new projects and the importance of work acquisition practices. This paper complements with its integrative approach more detailed case study work on capability accumulation in project environments such as the study by Verona and Ravasi (2003).

Future work to refine the framework and analysis proposed here could beneficially focus on the interaction between different levels of the organisation, distinguishing the project and business level. This would allow for a better understanding of knowledge flows between periphery and centre and also of the influence issues of control have on the development of the capabilities within the--routinely severely time-constrained--project-based firm. More advanced work, distinguishing between several project teams, could then investigate the question of coherence within a project-based organisation, in particular, with regards to the knowledge base available to different parts of the organisation, and the relative benefits of focus and diversification in the firm.

Further empirical work expanding and building upon the framework presented in this paper would be very valuable. In depth case studies could help to provide a better understanding of the relationships between the variables of the framework. Cross-sectional survey data could help to gauge the extent to which the relevance of the vicious and virtuous circles identified in this paper are of relevance across a range of industries.

Acknowledgements

We thank John Bessant, Andy Davies, Bob De-Fillippi, Mark Dodgson and Jonathan Sapsed for helpful comments on a previous version of this paper.

Received 13 November 2006 Accepted 19 September 2007

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