Towards A Holistic Approach To Strategic Project Management

International Journal of Project Management 19 (2001) 433–435 www.elsevier.com/locate/ijproman

Editorial

Towards a holistic approach to strategic project management

Large projects can have large consequences, not only for those who use them, but also for the organisations and institutions that build and finance them. When successful, large projects generate revenues and benefit society, but when they go wrong society suffers and the organisations and institutions that are in the business of large projects confront financial difficulties and potential damage to their reputation. Interest in improving the planing, design, and delivery of large projects is therefore long-standing. It has generated a considerable number of case studies and prescriptions that focus on internal management issues such as engineering estimates, scheduling, systems, control, and contractual design. What is patently lacking is a ‘‘holistic’’ approach that gives managers an understanding of how to tackle the complexity of large projects as evolving systems that are strongly influenced by their real world context. This Special Issue brings together a group of papers that map out many of the key issues facing a holistic study of large projects. The papers in this Special Issue are varied in content, but with the exception of the paper by Rodney Turner and Stephen Simister, they share a common research context: They all emerged from the ‘‘International Program on the Management of Engineering and Construction’’, or IMEC1. This research program which was conceived and championed by Roger Miller from the Universite´ du Que´bec a` Montre´al, Montreal, Canada, was expressly designed to study large projects as evolutionary systems, with as few preconceptions as possible. The program identified sixty large projects world wide. Most of the projects were in the energy and infrastructure areas. They included thermal, hydro, and nuclear power plants, oil platforms, mass transit systems, and toll roads. Twenty of the projects were built in North America, 20 in Europe, eight in Latin America, and the remaining 12 were built in Asia.

1 Results of the IMEC study are presented in The Stategic Management of Large Infrastructure Projects, Roger Miller and Donald L. Lessard (Eds), MIT Press, Boston, 2001. The paper by Miller and Lessard, Floricel and Miller, and Hobbs and Andersen, are adapted from chapters in that book.

The history of each project was reconstructed in depth. Key actors and stakeholders were interviewed, both for their recollections and their views. Every effort was made to enter into the frame-of-reference of these actors; to understand how they approached and dealt with large projects. The intent, however, was not to privilege the point of view of specific actors, but to understand how their calculations and actions meshed with the evolution of the projects. Such evolution is a combination of the deliberate and emergent. It is deliberate in as much as projects do not get built without formal commitment on the part of project participants to agreements and to specific goals. And it is emergent in as much as conflict and unforeseen events create new problems and require strategic adaptation. What balance between the deliberate and emergent must be struck in order to improve the probability of project success? Past literature on large projects has on the whole been based on the assumption that emergence and strategic adaptation are at best necessary evils. Thus, every attempt should be made to make project planning and execution as deliberate as possible, by developing frameworks that identify all contingent risks, and by designing projects in such a way as to maximise the ability of managers to exert control. The first paper by Roger Miller and Don Lessard suggests that making prediction and control the touchstones of large-project planning is myopic and counterproductive. Projects are admittedly risky, but beyond a certain point reducing risks by exhaustive analysis and projection prior to commitment can breed conservatism and inflexibility. It is better to begin with a realistic picture of the risks and then structure an approach that improves readiness to deals with unexpected risks when they emerge. Miller and Lessard base their approach on a four-fold distinction between risks that are within the control of key project actors and those that are not; and risks that are specific to the project as opposed to risks that are broader in origins. Each of these categories of risk should be handled differently if and when they arise. Miller and Lessard call their approach ‘‘layering’’ because it entails managing and dealing with risks as project evolution exposes new ‘‘layers’’ of risks that could not have been foreseen initially.

0263-7863/01/$20.00 # 2001 Published by Elsevier Science Ltd and IPMA. All rights reserved. PII: S0263-7863(01)00050-3

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Editorial / International Journal of Project Management 19 (2001) 433–435

Building on these insights, Serghei Floricel and Roger Miller develop a perspective on the management of large projects as strategic systems. They argue that the strategy and organisational design of large-scale projects must be based on the awareness that some risks can be anticipated while others cannot. The organisational and strategic properties that deal with anticipated risks is termed ‘‘robustness’’, while instilling organisational and strategic properties that deal with the second is termed ‘‘governability’’. Robustness is generally a product of deliberate prior strategizing. Governability, by contrast, is the unintended consequences of strategizing. It is emergent rather than deliberate. Floricel and Miller suggest that managers are not generally able to customise robustness and governability according to the specific requirements of each project— the sheer complexity of large projects precludes this possibility. Instead, managers select from a limited number of coherent and stable project configurations which they term strategic systems. They discuss three such strategic systems: rational-adaptive, entrepreneurial, and relational. The selection of these types depends on the type of sponsoring organisation, context, and basic technological characteristics. Rational-adaptive strategic systems are usually selected by government agencies and large regulated firms that operate or are embedded in power or transportation networks. Entrepreneurial strategic systems, by contrast, occur under deregulation and privatisation—often with projects that are lower in size and complexity. Relational strategic systems also occur in the context of deregulation and privatisation, but they are favoured by sponsors and firms intent on building and owning a portfolio of projects with low technological and market risks. The next two papers in this issue examine the crucial issue of the relationship between project participants. The first, by Rodney Turner and Stephen Simister, while not a product of the IMEC research program, contains important insights that reinforce IMEC’s perspective and key findings. Turner and Simister examine the relationship between client and contractor, in particular the issue of contract design that governs this relationship. Current practices in this area are largely the product of past experimentation legitimised by conventional wisdom. Inevitably, there is a desire to put the foundations of contract design on more solid theoretical footings. Transaction costs theory is an obvious candidate, but as Turner and Simister show, in spite of its appeal and undeniable elegance, this theory does not predict current contractual practices. These practices, they suggest, are shaped by uncertainty about process, product, and purpose. The choice of governance structure is not driven by ex ante demand to reduce risk, as transaction cost theory would predict, but by the need to achieve goal alignment between the client and the contractor. Uncertainty, in

particular product uncertainty, can undermine goal alignment. Contractual design is therefore a reflection of the need to maintain and if necessary regain this goal alignment, rather than an attempt to economise on the costs of setting up and administering contracts. The paper by Brian Hobbs and Bjørn Andersen which follows the one by Turner and Simister, also begins by exploring the disjunction between contractual design which is based on normative economics, and project governance that is relational in nature. Hobbs and Andersen criticise the tendency to polarise these perspectives; to argue that projects should be either one or the other. They suggest that it is possible to mix these options. Front-end processes can be internalised (usually within the owner’s organisation), or they can be jointly enacted by owner, contractor, and other relevant players. Execution can likewise take place on an arm’s length basis, i.e. the contractor is left to execute without involvement of others, or it can be a relational process where many of the parties involved work to solve problems and explore new opportunities. These two dimensions define four configurations of project development and execution. Hobbs and Andersen explore in length the two types that have relational execution in common: projects in which owners drive the front-end process with little input from contractors prior to execution, and projects in which owners, contractors, and other involved actors work together throughout the life of the project. Hobbs and Andersen show that each of these configurations contain considerable variations. In other words, there are no pure governance types. Projects are sensitive to industry and national contexts. They incorporate practices that are not explained by abstract project categories. This leads Hobbs and Andersen to reject the pervasive tendency in project management to identify and transfer ‘‘best practices’’ as a way of improving project effectiveness. Most projects follow practices that have been fine-tuned over many decades, not because managers are hidebound conservatives, but because they are acutely aware of critical nuances in their context. Innovation in project management practices therefore occurs when established practices can no longer deal with new problems. It is at this point, that managers explore new possibilities within the ‘‘pregnant complexity’’ implicit in the large number of permutations and combinations of existing project practices. For the most part, IMEC focused on individual projects, or more precisely on the strategies, organisation, and practices that enhance the planning and execution of individual projects. This project-centric perspective is consistent with the dominant comparative approach of project management research where projects are seen in isolation. Projects, however, are part of a larger ecology of projects; an ecology in which certain types of firms and institutions play a pivotal role as repositories of

Editorial / International Journal of Project Management 19 (2001) 433–435

knowledge and expertise. This knowledge and expertise is essential for the functioning of the large-project sector, and for this reason IMEC also gave attention to the strategies and organisation of these players. The paper by Joseph Lampel examines the strategy and core competencies of one key type of large-project players: engineering–procurement–construction, or EPC firms. An important challenge facing EPC firms is how to balance efficiency and flexibility under conditions of project and market diversity. Striking this balance takes place at the operating and strategic levels. At the operating level EPC firms build core competencies that contain the tacit and codified knowledge needed to effectively execute projects. Based on field work in the USA, Canada, the UK, France, Malaysia, and Japan, Lampel identifies four kinds of EPC core competencies: entrepreneurial, technical, evaluative, and relational. These core competencies are the product of learning and experience, but they are constantly challenged by new market opportunities. Thus, at the strategic level, EPC firms face fundamental tradeoffs when it comes to developing and managing their project portfolio. Based on these tradeoffs, Lampel identifies three types of generic EPC strategies: focusing strategy which is competency driven, switching strategy which is market driven, and combining strategy which attempts to balance these two imperatives. Large projects have always exercised fascination and bred controversy. Their impact on society is undeniable,

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and the urgency of the need to manage them more effectively is therefore not in dispute. Yet in spite of decades of experience it is difficult to say that substantial progress has been made towards improving performance, in part because the scale and complexity of large projects keeps increasing, but also because distilling this experience into prescriptions and ‘‘best practices’’ has its limits. This Special Issue attempts a holistic approach to the study of large projects. Such an approach holds the promise of a strategic theory of project management. Achieving this goal, however, is not without conceptual and methodological problems: large-scale projects are difficult to study in their totality. Yet as the papers in this Special Issue show, in spite of such difficulties a holistic approach holds promise. What is needed now is more research and more work that explicitly aims at developing theory and practice that was a comprehensive and strategic perspective in mind.

Joseph Lampel University of Nottingham Business School Jubilee Campus Wollaton Road Nottingham NG8 1BB UK E-mail address: [email protected]