SUMMARY
Project-based firms face particular difficulties in managing
innovation. This paper builds on the literature on concepts of
project-based firms to develop an approach to innovation management
linking work acquisition, execution and learning. The conceptual
framework is expressed in diagrammatic form, providing a succinct
representation of the complex relationships and a starting point for
analysis of the opportunities and challenges facing the management of
project-based firms, including those impeding success, in particular the
role of time pressures. The analysis helps to elucidate findings from
prior in-depth studies of a large number of engineering and design
firms. The paper also provides pointers for future research.
KEY WORDS
capabilities; innovation; project-based firms; modelling; system
dynamics; learning
1. INTRODUCTION
This paper examines the relationship between project acquisition
practices and innovation in project-based service organisations.
Analysing project acquisition and innovation alongside project execution
exposes key issues for commercial success in project-based firms (PBFs).
While the acquisition of work is an essential condition for survival in
the short term, innovation and the development of new capabilities are
preconditions for the exploitation of new markets and the adaptation to
a shifting environment. Work acquisition and innovation are closely
linked within project organisations. Not only does innovation enable the
acquisition of new, complex and demanding work; the acquisition of work
in turn, influences the potential path of learning and innovation as
learning occurs predominantly in the context of project execution. The
paper highlights the way in which current practices and strategies for
acquiring work relate to the development of innovative capabilities in
PBFs. In this, particular attention is paid to the influence of time
availability in the execution process on capability accumulation and
innovation.
The paper aims to clarify the relationships between strategies for
acquiring new orders, the type of work delivered, and the capability of
PBFs to innovate, by drawing together existing knowledge. It builds upon
results from a research project in which a system dynamic model was
developed and used in a PBF to assist the management of bidding
processes in order to improve the selection and delivery of innovative
projects. Previously, one of the authors had conducted intensive
research with a large number of PBFs in a variety of sectors (including
IT, engineering, construction, architecture), focusing in particular on
innovation in those organisations. Research as well as long-term
consultancy relationships with companies of different sizes (from SMEs
to large multinationals) allowed the identification of generic
challenges facing project organisations at different levels within these
organisations (from project team level to board level). Through
workshops, interviews and the observation of work practices, this
research resulted in a detailed understanding of how professionals in
these organisations undertake work, how they are managed, and how
learning from and across projects is possible. Many different PBFs
encounter particular difficulties in planning and sustaining systematic
learning and capability development over time within the vagaries of the
project environment. The relationships and interdependencies between
activities on the project and at the business level of the organisation
presented particular challenges for innovation in a diverse set of PBFs.
The paper is divided into seven sections. This introductory section
is followed by a literature review. Section three describes the approach
taken in this work. The fourth section systematises lessons from
previous research in diagrammatic form. Section five presents an
analysis of the factors influencing capability accumulation and the
feedback loops linking different elements of the project-based
organisation, concentrating in particular on the role of time pressures.
In section six, we discuss the findings and use the conceptual insights
gained through this process to view the experience of project
based-firms and their challenges in developing innovative capabilities
in a new light. Section seven presents our conclusions, discusses the
limitations of this paper and raises new questions for research and
practice.
2. CAPABILITIES AND PROJECT-BASED FIRMS
The contributions of Edith Penrose (1959) and subsequent scholars
employing related approaches have supported the central role that
resources play in the performance of the firm. The resource-based
approach investigates resources as the source of competitive advantage
(Wernerfelt, 1984; Rumelt, 1984; Barney, 1986; Diericks & Cool,
1989; Montgomery & Wernerfelt, 1988; Peteraf, 1993; Mahoney &
Pandian, 1992). The competence literature focuses on the ability to
manage, maintain, renew and deploy resources (Prahalad & Hamel,
1990). Resources include both tangible and intangible assets and
capabilities. Here they are understood as comprising assets (both
tangible, such as environmental equipment, and intangible, such as
contracts), and capabilities (loosely understood as the skills of the
organisation). Following Winter (2003) we define organizational
capabilities as high-level routines an organisation has available for
producing significant outputs of a particular type. Although having the
capabilities to do something does not mean that the firm actually
undertakes this activity, the capability is a necessary condition for
this activity (Prahalad and Hamel, 1990). Moreover, capabilities that
are not exercised add to the cost-burden and are liable to decay
(Winter, 2003).
While the resource-based view acknowledges the differences of firms
in regard to their resource endowment (Peteraf, 1993) and concentrates
on the conditions under which resources (assets and
capabilities/competences) become valuable and difficult to replicate,
related and subsequent contributions to the debate take a more dynamic
perspective and inquire into the building and sustaining of these
capabilities and in particular dynamic capabilities that 'operate
to extend, modify or create ordinary capabilities' (Winter,
2003).This 'dynamic capabilities' literature stresses the
crucial importance of the high-level capability to develop resources
(Teece et al., 1997). The dynamic resource based view of strategy
(Warren, 2002) stresses the accumulation of resources and capabilities
over time as well as the impact of these dynamics on performance. This
approach is of particular relevance here as it employs a similar mapping
approach based on the tool set of system dynamics (Sterman, 2000) to the
one suggested in this paper.
While fundamental changes in product strategy and form including
capabilities can be essential in rapidly changing markets, the
preservation of a degree of continuity and coherence in firms is
necessary to exploit existing capabilities. (Rindova and Kotha, 2001) In
the case of product development, Verona and Ravasi (2003) have suggested
that dynamic capabilities are developed in a process involving knowledge
creation and absorption, knowledge integration, and knowledge
reconfiguration. They stress that knowledge creation and absorption are
only the prerequisites for innovation, while the capability of
integrating specialized dispersed knowledge trigger continuous
innovation. The reconfiguration or recombination of knowledge allows
then to make this continuous innovation process sustainable. Similarly,
it is a theoretical and practical challenge to establish the underlying
elements of stability and routine that allow PBFs to develop
capabilities which provide sustainable competitive advantage in changing
markets.
The current paper builds on insights provided by the literature in
focusing on the resources of the project-based organisation. Our
analysis is based on examination of the causal links between resources,
their accumulation, depletion rates, and different work acquisition and
innovation strategies. PBFs often innovate in collaboration with other
organisations; clients, suppliers or project partners, rather than in
isolation. Their activities draw on knowledge from sources, such as
universities, which are not directly involved in the projects they carry
out. A complex web of relationships underlies the innovative process, as
the 5th generation of innovation models recognises (Rothwell, 1992). For
the purpose of this paper we have chosen to focus on specific issues of
innovation in the PBF itself--the resources and capabilities, work
acquisition and innovation strategies of the firm. Setting the boundary
of the study does not imply that relationships beyond this definition
are unimportant for innovation in project enterprises. We restrict
ourselves to studying the resources of the firm and factors under its
control, because we contend that--at least in first approximation--the
firm environment beyond the system boundary is not changed by the
choices made within the firm, and its effect on the firm and subsequent
performance is therefore not changed by the firm. The firm will, for
example, through its activities not add significantly to the stock of
knowledge available from external sources. This approach allows us to
identify the processes and mechanisms linking work acquisition and
innovation and the management levers available to the firm. It will be
amongst tasks left for future study to refine these findings by putting
more emphasis on changes in the firm environment.
PBFs operate in many sectors of the economy: from advertising and
the creative industry, to IT, engineering and construction. The
characteristics of PBFs and the environment within which they operate
make it difficult for decision-makers to see the consequences of their
project acquisition activities in regards to their potential to build
innovative capabilities. These issues are significant because of the
contribution of PBFs to the economy, and because of the desirability of
improving performance of these businesses through systematic learning
and innovation processes. Research into innovation in PBFs and new
insights into the levers available to managers in such organisations
have the potential to help these organisations and society to benefit
from innovations originating within PBFs.
For many PBFs, especially those providing professional services,
such as consultancy, advertising, or engineering design, capabilities
are their main asset.
Innovation is particularly important, but also subject to
particular challenges in PBFs. Since innovation in PBFs occurs regularly
during project execution and more infrequently within dedicated R&D
efforts, the nature of innovative activities in these organisations is
episodic (Gann & Salter, 2000) and difficult to plan. Learning is
crucially influenced by learning opportunities in projects, determined
both by the nature of the work, and the resources available within
project execution for innovative problem solving. The organisational
context of PBFs as well as the particular characteristics of the markets
within which some PBFs operate, such as the construction industry, can
present challenges for carrying out innovation (Gann & Salter, 2000;
Nam & Tatum, 1997).
Capabilities are accumulated on the project level and specific
efforts are required to ensure the transfer of knowledge to other
projects and to the organisation. A key challenge therefore is to
overcome the limitation of a discontinuous learning process (Brady &
Davies, 2004). Time-constraints and the lack of slack in PBFs severely
constrain learning activities and innovation. The speed and focus of
projects can nevertheless, lead to targeted learning, although the
contribution of this accumulated knowledge at the project level to the
strategic requirements of the wider organisation and its performance
over time remains uncertain. Project-level knowledge must be captured
and made accessible in order to be available across the organisation.
The loss of valuable knowledge and obsolescence can threaten the
organisational knowledge base, particularly in complex and rapidly
evolving knowledge areas. The literature on knowledge management has
considered some of these issues and recommended strategies and
techniques for tackling them. However, time pressures as well as the
relative autonomy at the project level in many organisations often act
as a disincentive to the transfer of this knowledge to the
organisational core. There is a challenge in linking learning within
project processes to learning in core business processes in PBFs. Nam
and Tatum (1997) have identified slack as a prerequisite for innovation
in construction companies yet clearly, slack can also be costly and
wasteful. There are also concerns that excess slack might even have
negative consequences for innovation itself. In manufacturing, an
inverse U-relationship between slack and innovation has been found as
the result of two counterbalancing effects: while lack of slack prevents
experimentation, too much slack can result in unfocused and
undisciplined experimentation, not resulting in positive innovative
outcomes (Nohria & Gulati, 1996).
3. APPROACH
In this paper we draw together a conceptual framework of the
relationship between work acquisition and the development of innovative
capabilities based on theories captured in the growing literature of
PBFs. Building on the theoretical conceptualisations on aspects of the
problems found in the literature, we develop a more comprehensive
picture of the relationships. We synthesize the existing literature in
diagrammatic form as a coherent and consistent expression of a theory.
We follow the approach used by Sastry (1997) as well as Rudolph and
Repenning (2002), who characterise this as a special case of grounded
theory building--based not on primary empirical research, but on
learning from previous theoretical conceptualisations.
The use of causal-loop diagrams and other tools from System
Dynamics (Sterman, 2000) facilitates the analysis of the feedback loops
in the system in which PBFs operate. This is a powerful way of examining
the resistance of the system against a desired change (e.g. the
development of capabilities to move into a new market) or to understand
the reasons why managerial actions do not have the desired consequences.
This approach also gives the opportunity to draw on findings and methods
of system dynamics work in related areas such as project management
(Cooper, 1980; Lyneis, 2001), innovative organisations (Saeed, 1998),
innovation and diffusion (Milling, 2002), work acquisition and workload
fluctuations (Bayer & Gann, 2006).
In the diagrams presented below, variables correspond to real-world
phenomena, which can be operationalized and are, in principle,
measurable, even if this may be more difficult for those corresponding
to intangible concepts (such as reputation or capabilities). We follow
the standard conventions used in causal-loop diagrams and in system
dynamics (Sterman, 2000) more widely and denote causal connections with
arrows. The variable at the origin of the arrow influences (possibly in
conjunction with others) the variable at the head of the arrow, the +
(or -) sign denotes that--all else remaining equal--a small increase in
the value of the variable at the origin will result in an increase (or
decrease) of the variable at the head, compared to the value it
otherwise would have. In addition to these causal links, normally found
in causal loop diagrams, we also distinguish state (stock, level)
variables from auxiliary and flow (rate) variables. State variables are
marked with a box around the variable name. This distinction is useful
in the further analysis of relationships since the resources of an
organisation are state variables which accumulate over time, and can
therefore only indirectly be changed by changing the associated flow
variables.
4. WORK ACQUISITION, WORK EXECUTION AND INNOVATION IN PBFS
In this section, a conceptualisation of the project-based
organisation is further developed. This will form the basis of our
analysis of the relationship between work acquisition, work execution
and innovation. We begin by identifying key resources and capabilities,
and then map out the effects of these resources and the factors which
influence resource accumulation. Necessarily this will require a certain
degree of simplification. We look at three areas in turn: work
acquisition, work execution and finally, at innovation and capability
building as the particular interest of this paper. By doing this we are
able to construct a map of the key relationships influencing performance
and behaviour of the PBF (Figure 1).
4.1 Resources and capabilities
Competitive advantage derives from the capabilities of an
organisation. Resources (productive assets of the firm) working together
create capabilities (what a firm can do) (Grant, 2005: 139). Following
Warren (2002) we define asset stocks as including both tangible and
intangible resources and capabilities. The key assets for the
project-based professional services firms are considered to be its
staff, knowledge, financial resources and its reputation. In order to
offer new products and services, different types of capabilities have to
be accumulated. These include functional and organisational
capabilities, in addition to specific project capabilities such as
effective bid and project management (Davies & Hobday, 2005).
Capabilities are partly embodied in the staff of the organisation.
Reputation, gained through successful project outcomes, is a key
resource for winning new work and attracting highly skilled staff. In
our analysis we will concentrate on the asset stocks reputation,
capabilities, workload and financial resources (Table 1).
Divisions within a PBF, between projects, and between projects and
the central organisation can be pronounced (Gann & Salter, 2000).
The resources in PBFs are often not controlled centrally and
considerable discretion is left to project managers and baron-like group
leaders (Gann & Salter, 2003). The many interfaces which have to be
considered in the management of projects result in a crucial role of
negotiations and power games to reach compromises (Courpasson, 2000).
This recomposition, though not abolishment of the hierarchical
organisation (Clegg & Courpasson, 2004), leaves considerable scope
for interpretation and negotiation of rules by project managers (Clegg,
1975).
[FIGURE 1 OMITTED]
Hobday (2000) identifies the coordination of processes, resources
and capabilities across the organisation as an inherent weakness in a
project-based organisation. Knowledge can be held by individuals or
groups of staff and might be explicit and tacit. These characteristics
will influence the permanence and accessibility of the knowledge base
(Davies & Hobday, 2005).
Resources and capabilities accumulate and deplete over time. The
asset stock at present is the sum of all the inflows minus all the
outflows in the past (starting from its initial value). In the diagrams
asset stocks are shown as boxed variables.
4.2 Work acquisition and workload
Project based firms devote substantial resources to work
acquisition. For services this is particularly challenging due to the
variable demand for these services, and the potentially low probability
of bidding success (Gann & Salter, 2000), combined with the
non-storable nature of a service. Reputation gained from previous
projects is an important factor in bid success, since projects cannot be
inspected before purchase. Reputation erodes over time or can be lost
through high profile failures (Gann and Salter, 2000). If contracts are
won they add to the stock of projects to be started and eventually to
workload. As tasks are accomplished, workload reduces; workload is
therefore also a stock variable (and marked with a box in the diagrams).
Managing workload is important. The lessons Wheelwright and Clark (2000)
drew for new product development are also relevant here: the mix and
volume of projects has to be controlled as overload results in
insufficient attention to be given to individual projects, prevents
making use of unexpected opportunities and, importantly, impacts on
capability development (Table 2).
4.3 Project execution
Capabilities enable project execution; a higher level of
capabilities will result in more rapid and more successful project
completion. Project execution however is not a mechanical or entirely
predictable process. Projects are often very difficult to standardize
and frequently run behind schedule. A sense of crisis and
'fire-fighting' is a frequent occurrence in projects and often
part of the culture of PBFs. The activities of project staff
--frequently in the form of individual heroics--to deal with such
crises, can exacerbate the problem. The vicious work time cycle (caused
by crises and constant interruptions) identified by Perlow (1999) and
the under-use of beneficial project management and process innovations
due to the initial time investment required (Repenning, 2002) are
examples of situations where the actions to deal with time pressures
decrease productivity within the organisation. Furthermore, project
modelling studies from a system dynamics perspective (Cooper, 1980;
Lyneis et al., 2001) have shown how time pressures lead to quality
problems in execution and increased rework. Under-resourced projects
result in excess rework and project overruns; the strategies to acquire
new work can, exacerbated by this mechanism, result in workload
fluctuations with further consequences for resource availability (Bayer
& Gann, 2006). 'No project is an island': projects are
history dependent and organisationally embedded open systems whose
performance is influenced by their relationship to competing activities
and the norms and routines of the organisation (Engwall, 2003). Overruns
in time and excess resource consumption will impact other projects
carried out in the organisation and constrain the resources for
innovative problem solving and the time available for less pressing (but
important) activities such as knowledge management (Table 3).
4.4 Innovation and capability building
Innovative problem solving in PBFs occurs mainly in the context of
actual client projects and only rarely in dedicated research projects
(Gann & Salter, 2003). Opportunities for systematic problem solving
are very limited. Time pressure has been identified as the main factor
in limiting innovative activities within PBFs, with cost and the number
of projects undertaken as further barriers (Gann & Salter, 2000).
The latter barrier could be explained both by its indirect effect on the
time available for innovation, and by the distracting impact of the
diversity of projects. Time is also required to transform experience
into explicit knowledge (Schon, 1983). Innovation can be impeded by
limitations in technical knowledge (Gann & Salter, 2000). The
ability to build new capabilities is based on prior knowledge and
experience (Penrose, 1959).
As with manufacturing, capabilities are accumulated as an
organisation gains experience. However, this experiential learning curve
is supplemented by capability accumulation influenced by the
'type' of projects. More complex projects present learning
opportunities which are not found in standard projects (Rockart, 2003).
Due to the limited role of dedicated learning activities, the
accumulation of capabilities for more complex problem solving; or for
problem solving in new areas, depends crucially on learning
opportunities in client projects.
A balance between routine work (exploiting the accumulated
capabilities) and challenging, innovative work providing learning
opportunities has to be found.
Improvisation plays an important role in many projects. Projects
can be unique and therefore strategic planning in advance impossible,
consequently sophisticated strategies to mange them and allow for
uncertainty have to be adopted (Pitsis et al., 2003). A strategy just
based on improvisation without the development of routines (at least
high-level routines) would not build capabilities (Winter, 2003).
Learning pays of if at least elements or practices, developed as
solution in a specific case through ad hoc problem solving, can be
reused. Processes for translating what has been learned initially in a
specific project into a repeatable solution (in order to reap economies
of repetition and recombination) become therefore important (Davies
& Brady, 2000). While routinization and related efforts in learning
and knowledge management are likely to be beneficial, the benefits of
routinization and capability accumulation need to be seen in conjunction
with the cost of building and maintaining capabilities; sometimes ad hoc
problem solving will be cheaper (Winter, 2003).
Whereas there are some concerns in the literature that experience
with routines might impede the ability to acquire new resources or
produce other products (Nelson and Winter, 1982), other studies have
found that--at least in the disk drive industry--this is not necessarily
the case; managers in the disk drive industry, for example, use past
experience to enter new market niches; inertia generated by static
experience in the past can not be detected (King and Tucci, 2002).
While individual projects draw on central resources in project
execution, the building of central resources will need to draw on the
knowledge accumulated on the project level (Gann & Salter, 2000).
PBFs strive to ensure that the knowledge gained in a project becomes
available to subsequent projects and the organisation more widely. PBFs
frequently implement knowledge management systems, in order to ensure
that the knowledge gained within a project becomes available to
subsequent projects (Brady et al. 2002). However, this can be fraught
with difficulties (Middleton, 1967; DeFillippi, 2001; Gann & Salter,
2000). The decentralised organisational structure of a PBF can provide a
disincentive for knowledge capture. Putting effort into capturing
knowledge and making it available to others in the organisation might
not be seen as a worthwhile activity for time-constrained project teams
(Table 4).
5. ANALYSIS
The causal relationships between resources and other key variables
of the PBF are described in the tables above, and can be visualised as a
map (see Figure 1). This map shows the many feedback loops active in a
project-based organisation.
The following discussion analyses some of the main feedback loops
which influence the behaviour of the PBF in regards to capability
accumulation. In this analysis, we use 'time pressure' as a
focusing device to select feedback loops for detailed attention. Time
pressures are not only intimately intertwined with the culture of
project organisations and the mode of project execution (cf. Perlow,
1999), but also a key factor in rework generation and failures of
project execution (Cooper, 1980), the factor limiting the ability to
innovate (Nam & Tatum, 1997; Gann & Salter, 2000) and a factor
reducing knowledge capture activities (Schon, 1983).To facilitate
analysis, we examine selected feedback loops separately (keeping all
other variables constant) in this section before we then discuss the
consequence of their interaction for managing PBFs in the next section.
1. Excessive workload results in time pressure which harms the
quality of project execution. As work gets rushed more mistakes are made
and more rework is required. As a consequence of the lower quality of
project execution, the rate with which projects are completed is
reduced. Consequently, workload is not as much reduced as it otherwise
would have been. Thus, this reinforcing feedback loop counteracts the
normalisation of an excessive workload level (Figure 2).
2. Time pressure prevents innovative problem solving and therefore
slows the acquisition of advanced capabilities. As the stock of
capabilities available is consequently lower, it will therefore take
longer to complete projects. The organisation is 'too busy to
think'; too busy to develop the capabilities which would help to
manage the workload better (Figure 3).
[FIGURE 2 OMITTED]
3. Under time pressure, organisations neglect the capture of
knowledge from projects, resulting in a loss of capabilities as project
teams disperse. This is another reinforcing loop counteracting the
development of capabilities which would allow the better management of
workload (Figure 4).
[FIGURE 3 OMITTED]
4. More developed capabilities allow the organisation to undertake
innovative problem solving which results in further capability
accumulation. This is a further reinforcing feedback loop (Figure 5).
These reinforcing feedback loops are a familiar occurrence in many
PBFs where fire-fighting and time famine (Perlow, 1999) are common.
Reinforcing loop 3 'Too busy too capture knowledge' is
exemplified by the case of the project-based division (PBD) of a
pan-European company, analysed by Davies and Hobday (2005: 134) where:
despite good individual project performance, in the previous two
years the high-pressured work environment had left little space
for-formal training or staff development, either in technical or
commercial areas. It was apparent that many of the formal and
informal activities associated with organisational learning and
improvement (e.g. post-project reviews, technical mentoring and
informal communications) were not being performed. Lessons learned
from particular projects were not shared formally because there
were no structures or incentives for cross-project learning or
communications. It had become hard to learn from project to
project, leading to worries within PBD over its long-term
effectiveness.
[FIGURE 4 OMITTED]
[FIGURE 5 OMITTED]
In addition to the reinforcing feedback loops discussed above,
there are also counteracting balancing loops which tend to drive
workload back into equilibrium. A balancing feedback loop counteracts
for example the effect of excessive workload. As the project completion
rate drops (due to quality problems) the intangible resource reputation
drops over time as well. This causes the company to secure less new work
and workload normalises as a consequence--with the unwelcome consequence
of diminished reputation (Figure 6).
This type of analysis can help to identify short-term costs (in
terms of resources and potentially reputation) from taking on too great
a volume of projects, or projects that are too complex, as well as the
trade-offs between exploitation and exploration. Similarly, the
relationship between reputation and winning more complex projects with
better learning opportunities (and better access to skilled labour) or
the effects of financial success on the availability of resources for
learning can be investigated.
[FIGURE 6 OMITTED]
A company specializing, for example, in simple projects might
rarely be able to move to highly complex projects because opportunities
to acquire new skills are lacking. Both capability accumulation and
reputation (which constrains winning projects and subsequently acquiring
capabilities) act as barriers to rapid change. A vicious circle can
result in companies remaining locked into a particular application area,
or in simple and low complexity projects. Breaking out of such traps can
be difficult in project-based environments if specific resources for
capability development are not available and time pressures are high.
Consequently, there can be different paths of evolution (e.g. high and
low complexity projects) between which companies cannot easily switch.
6. DISCUSSION
The feedback loops analysed in the previous section interact with
each other and with other influences laid on in the map of relationships
(Figure 1). The interrelatedness makes managing such organisations
difficult. Actions might have unintended consequences which often are
not immediately visible. Concentrating on project execution without due
regard to the consolidation of capabilities will harm the firm in the
longer term. Low quality project outcomes as result of a rushed job will
harm reputation.
Of particular importance is to understand the 'fit' of
project level knowledge to the potentially evolving requirements of the
project-based organisation. Available capabilities shape the potential
to win new projects with distinctive learning opportunities. The type
and complexity of a project will influence whether more experience in an
area; more advanced skills within a particular knowledge domain; or
knowledge in new areas can be accumulated.
Resource allocation to a project determines the scope for
innovative problem-solving within such projects. The strong potential
for unforeseen developments in current projects and the variability of
bid success add to uncertainty in workload planning. It is typical that
market demand and local decision-making determine the type, size and
complexity of projects. Therefore, the scope for learning and capability
accumulation is often determined by activity at the local level, rather
than by planning from the centre of the organisation. This limits the
extent to which capability accumulation can be managed within
project-based environments through conventional hierarchical management
processes. Knowledge capturing activities, whose benefit might only be
reaped by future projects, and potentially by other parts of the
organisation, are often of low priority for project teams.
The time shortage in project environment militates against the
investment of time spent in developing solutions which consider a
broader account than the current crisis. While time restricts the
ability to innovate in PBFs, the risks related with excess time are less
relevant in project-based environments than in manufacturing. PBFs are
often under such severe time constraints that the danger that 'pet
projects' and unfocused (and therefore ultimately unsuccessful)
innovative activities are undertaken is small. The focus on projects and
the close client relations ensure in addition that innovative activities
remain concentrated and targeted.
The accumulation process of resources and capabilities introduces a
strong element of history dependence: the reputation and the knowledge
gained in past projects influence work acquisition, execution and
learning in the present. Lock-in into particular types of projects can
occur and the path of capability development can be severely
constrained, significantly more so than in non-project organisations
where often more substantial resources can be made available for
dedicated learning not directly connected to current work. Therefore,
overcoming the capability barriers for new areas of work or more complex
work is difficult. PBFs are likely to be even more limited than other
companies to change course and acquire radically new or far more
advanced capabilities.
Work acquisition practices are the key lever to steer the course of
capability development and innovation in PBFs. Current work affects the
future potential to develop capabilities and skills to innovate. This
limits the growth of the firm and development of its strategic
resources. The type of work currently carried out is determined by the
firm's approach to acquiring work and the strategic choices that
are made in winning orders. This sets limits on the firm's ability
to win better wo